Case Law Details
Vilson Roofing Products Pvt. Ltd. Vs ACIT (ITAT Pune)
The Income Tax Appellate Tribunal (ITAT) in Pune has rendered a pivotal decision in the case of Vilson Roofing Products Pvt. Ltd. Vs Assistant Commissioner of Income Tax (ACIT), concerning the reassessment proceedings under section 147 read with section 143(3) of the Income-tax Act, 1961 (the Act) for the assessment year 2009-10. This case examines the procedural and substantive aspects of the reassessment initiated on the grounds of undisclosed share subscription amounts, purportedly arising from accommodation entries as identified by the investigation wing.
Detailed Analysis: The crux of the matter revolved around the reassessment initiated by the Assessing Officer (AO) after receiving information indicating that Vilson Roofing Products Pvt. Ltd. was the ultimate beneficiary of certain cash transactions camouflaged as share subscription. The AO, after due process, concluded that the company failed to substantiate the creditworthiness of the share subscribers and the genuineness of the transactions, resulting in an addition of ₹3.00 Crores under section 68 of the Act as unexplained cash credits.
The company challenged the reassessment notice and subsequent addition on several grounds, including the validity of the reassessment initiation and the AO’s failure to prove the non-genuineness of the share subscription money. However, both the CIT(A) and ITAT dismissed the company’s arguments, upholding the reassessment and the addition made by the AO.
The ITAT’s decision was heavily influenced by the principles laid out in several landmark judgments, including the Supreme Court’s ruling in PCIT Vs NRA Iron & Steel, which emphasized the heightened onus on assessee to prove the creditworthiness of share subscribers and the genuineness of transactions in cases of private placement of shares. The Tribunal observed that the appellant company did not furnish sufficient evidence to establish the creditworthiness of the subscribers or the genuineness of the share subscription transactions, thereby failing to meet the required legal threshold.
Conclusion:The ITAT Pune’s ruling in Vilson Roofing Products Pvt. Ltd. Vs ACIT reinforces the stringent scrutiny applied by tax authorities and tribunals in cases involving share subscriptions, especially those flagged by investigative wings for involving accommodation entries. This decision underscores the imperative for companies to maintain robust documentation and evidence to substantiate the genuineness and creditworthiness of share subscriptions.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal of assessee for assessment year 2009-10 [in short ‘AY’] impugns order of Commissioner of Income Tax (Appeals)-11, Pune [in short ‘CIT(A)’] dt. 18/04/2023 passed u/s 250 of the Income-tax Act, 1961 [for short ‘the Act’] which emanated out of order of assessment dt. 30/12/2016 passed by Asstt. Commissioner of Income Tax (Central) Circle, Kolhapur [in short ‘AO’] u/s 147 r.w.s. 143(3) of the Act.
2. Briefly stated facts of the case are that;
2.1 Assessee Company filed its return of income [in short ‘ITR’] declaring NIL total income. Upon information from investigating wing that assessee is ultimate beneficiary of cash transaction arising to it in the form of share subscription, Ld. AO after recording reasons & obtaining prior approval from jurisdictional authority has reopened assessee’s case u/s 148 r.w.s.147 of the Act.
2.2 In response thereto assessee filed fresh ITR and upon receipt of reopening reasons has filed its objections which were disposed-off by Ld. AO by a speaking order.
2.3 Upon assessee’s failure to establish creditworthiness of subscriber company and genuineness of issue of 2000 share of face value of ₹1000/-each at a premium of ₹14000/-each share to the satisfaction, Ld. AO culminated the proceedings by bringing to tax full amount of share subscription of ₹3.00Crores in the hands of assessee as its unexplained cash credit u/s 68 of the Act and accordingly framed the assessment u/s 143(3) r.w.s 147 of the Act.
2.4 Aggrieved assessee unsuccessfully contested above addition in an appeal before first appellate authority. Further aggrieved, the assessee came in present appeal u/s 253(1)(a) of the Act on following grounds;
“1. On the basis of facts and in the circumstances of the case and as per law, the notice issued u/s 148 is bad in law.
2. On the basis of facts and in the circumstances of the case and as per law, the learned AO has erred in reopening of the case without forming his own belief. Order passed under section 147 in this regard is bad in law.
3. On the basis of facts and in the circumstances of the case and as per law, the reasons are based on the AO roving enquiries without any concrete material in his possession.
4. Without prejudice to Ground Nos 1 to 3 above, on the basis of facts and in the circumstances of the case and as per law, the Assessing Officer has not conclusively proved the receipt of Rs 3.00 corers by the assessee towards share application money being not genuine or bogus or sham. The addition thus made be deleted.
5. The appellant craves leave to add, alter, omit or substitute any of the grounds at the time of hearing of the appeal.”
3. We have heard rival contentions of both parties on legal issue raised in first three ground and meritare ground number 4 of the appeal; and subject to provisions of rule 18 of ‘ITAT Rules’, perused material placed on record, case laws relied upon by parties and duly considered the facts of the case in light of settled legal position which are also forewarned to respective parties.
4. We find that, legal issue raised through first three grounds is similar to the issue raised before first appellate authority, wherein the Ld. CIT(A) after examining claim of the assessee & elaborated discussion has adjudicated the issue against the appellant. The appellants submission is no different than before tax authorities below, therefore we deem no necessary to multiply authorities on this point in confirming the adjudication laid in para 11-15 of the impugned order in absence of any deprecative evidence;
“11. I have considered the submissions made by the appellant. Before reaching to any decision as to whether the reopening u/s 147 of the Act in the present case is valid or otherwise, it is Important to examine the relevant provisions of the Act as well as various judicial pronouncements on this issue. As per the provisions of Section 147 of the Act, for reopening of assessment within a period of 4 years from the end of the assessment year, the only requirement for reopening the case is “reason to believe”. For a period beyond 4 years in cases where an original assessment was made u/s 143(3), further requirement is the non-disclosure of material facts necessary for assessment by the assesses. However, in cases where no scrutiny assessment has been made even beyond a period of 4 years, the only requirement for reopening the case is “reason to believe”.
12.1 The, Hon‟ble Supreme Court in case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 while examining the requirement of the issue of notice u/s 148 held that all that is required for issue of notice under section 147, is “reason to believe” that some income has escaped assessment in the following words :
“The expression “reason to believe” in section 147 would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. What is required is “reason to believe” but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because the formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer.”
12.2 Further, the Hon‘ble Supreme Court in Central Provinces Manganese Ore Co. Ltd vs ITO [1991] 191 ITR 662 has observed that at the stage of initiation of proceedings u/s 147 of the Act, what is relevant is the existence of reasons to make the Income-tax Officer believe that there has been under-assessment of the assessee’s income for a particular year. The final outcome of proceedings is not relevant. Also, Hon‘ble Supreme Court in the case of Raymond Woollen Mills Ltd Vs ITO [1999] 236 ITR 34 (SC) while examining the issue of validity of notice u/s 148 has held that at the stage of initiation of proceedings u/s 147 of the Act, we have only to see whether there was prima facie some material on the basis of which department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage.
12.3 The issue whether inference of the Assessing Officer can be questioned has been examined by Hon‘ble Supreme Court in several other cases wherein Hon‘ble Supreme Court has held that the assessee may challenge the validity of a notice on the ground that conditions precedent reopening of case does not exist, but an investigation, whether the inferences raised by the assessing officer are correct or proper cannot be made, as held in case of CIT vs A. Raman & Co. (1968) 67 ITR 11, 16 (SC). If there are in fact some reasonable grounds for assessing officer to believe that there had been any non-disclosure as regards material fact, whether the grounds are adequate or not is not a matter for the court to investigate because sufficiency of the ground which induced assessing officer to act is not a justifiable issue as held by Hon‘ble Supreme Court in case of S. Narayanappa vs. CIT (1967) 63 ITR 219.
12.4 Examining a similar issue in the case of Phool Chand Bajrang Lal and another v ITO (1993) 203 ITR 456 (SC) where Assessing Officer located at Ajamgarh in UP after receiving information of accommodation entry from the ITO Calcutta re-opened the case u/s 147 of the Act, Hon’ble Supreme Court approved the decision of the AO to issue notice u/s 148 of the Act and has held as under:
“Since, the belief is that of the income-tax Officer, the sufficiency of reasons tor forming the belief, is not for the Court to judge but it is open to an assesses to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief.‟‟
12.5 Hon’ble Supreme Court in another case Calcutta Discount Co. Ltd v ITQ (1961) 41 ITR 191 201-02 (SC) examining the power of court to investigate the belief of the AO has held as under:
“All that is necessary to give special jurisdiction under section 147(a) is that the Assessing Officer had when he assumed jurisdiction some prims facie grounds for thinking that there has been some non-disclosure of material facts. Whether these grounds were adequate or not for arriving at such conclusion would not be open for the Courts‟ Investigation. Clearly it-is the duty of the assessee who wants the court to hold that jurisdiction was lacking, to establish that Assessing Officer had no material at all before him for believing that there had been such non-disclosure. ”
13. Following are few other case laws, where, the reopening has been upheld by various courts in the similar circumstances.
i) Yogendra kumar Gupta Vs ITO 51 com 383 (SC) where Hon‘ble Supreme Court dismissed the SLP against the High Court judgment which held that where subsequent to completion of original assessment, Assessing Officer, on basis of search carried out in case of another person, came to know that loan transactions of assessee with a finance company were bogus as said company was engaged in providing accommodation entries, it being a fresh information, he was justified in initiating reassessment proceeding in case of assessee.
ii) In the case of Avirat Star Homes Venture (P.) Ltd. [2019] 102 com 60 (Bombay), Hon’ble Bombay High Court has held- Where information was received from investigation wing about certain companies that were involved in giving accommodation entries of various natures to several beneficiaries and assessee was one of them, information supplied by investigation wing to Assessing Officer, thus, formed a prima facie basis to enable Assessing Officer to form a belief of income chargeable tax having escaped assessment.
iii) In the case of PCIT Vs Paramount Communication (P.) Ltd. (2017-TIOL-253-SC-IT), Hon‘ble Supreme Court dismissed SLP of assessee. Information regarding bogus purchase by assessee received by DRI from CCE which was passed on to revenue authorities was ‘tangible material outside record’ to initiate valid reassessment proceedings.
iv) In the case of Aradhna Estate (P.) Ltd.Vs DCIT [2018] 91 com 119 (Gujarat), Hon‘ble Gujarat High Court held that where reassessment proceedings were initiated on basis of information received from Investigation wing that assessee had received certain amount from shell companies working as an accommodation entry provider, merely because these transactions were scrutinised by Assessing Officer during the original assessment, reassessment could not be held unjustified.
v) In the case of Pushpak Bullion (P). Ltd. Vs DCIT [2017] 85 com 84 (Gujarat), Hon‘ble Gujarat High Court held that where investigation wing of department had during the course of investigation in case of a third party found that he was indulged in providing accommodation entries and bogus bills, and assessee had made sizeable purchases from him, reopening notice against assessee was justified.
vi) In the case of Ankit Financial Services Ltd. Vs DCIT [2017] 78 Com 58 (Gujrat), Hon‘ble Gujrat High Court held that where material recovered in search of another person indicated that assessee had received bogus share applications through accommodation entries, since assessee was beneficiary, initiation of re-opening was justified.
vii) In the case of Aaspas Multimedia Ltd. Vs DCIT[2017] 83 taxmann.com 82 (Gujarat), Hon’ble Gujarat High Court held that where reassessment was made on basis of information received from Principal DIT (Investigation) that assessee was beneficiary of accommodation entries by way of share application provided by a third party, same was justified.
viii) In the case of Ankit Agrochem (P.) Ltd. Vs JCIT[2018] 89 com 45 (Rajasthan), Hon‘ble Rajasthan High Court held that where DIT informed that assessee-company had received share application money from several entities which were only engaged in business of providing bogus accommodation entries to beneficiary concerns, reassessment on basis of said information was justified.
14. In the present case, the appellant has not claimed that original assessment was completed u/s 143(3) of the Act, therefore, the only requirement for issue of notice u/s 148 of the Act is that there should be a fresh Information with the Assessing Officer Indicating that some income has escaped. Moreover, as discussed above, the sufficiency or correctness of the material is not a thing to be considered at this stage. The reasons recorded by the Assessing Officer clearly suggests that the Investigation Wing of Kolkata carried out an extensive investigation regarding the network of accommodation entry providers wherein it was found that a total amount of Rs. 259.63 crore was deposited in cash in DCB, Kolkata and after multilayering the transactions, the said amount was ultimately transferred to beneficiaries. As per the investigation conducted by the investigation Wing, the appellant was a beneficiary of such accommodation entries and received an amount of Rs. 37,50,000/- and the name of the assessee was/appearing at 5th layer. Thus, the case was re-opened on the basis of fresh and specific information which was received by the Assessing Officer on 29/03/2016 and therefore, the requirement as provided u/s 147 of the Act is getting fulfilled in the present case because as discussed earlier in this order in the present case the only requirement is that there should be a fresh information with the Assessing Officer indicating that some income has escaped.
15. To sum up, in this case credible information was received by the Assessing Officer which was examined by him. After examination, a reasonable belief was formed by the Assessing Officer that the income for A.Y. 2009-10 escaped assessment. He therefore, issued notice u/s 148 of the Act, after recording „reasons to believe‟ and taking approval. On receipt of request from the appellant, copy of reasons recorded was provided to the appellant. The objections filed by the appellant challenging the reopening were also disposed by the Assessing Officer vide his order dated 30/11/2016. Thus, the Assessing Officer has followed the due procedure for reopening the assessment. In view of the totality of facts, provisions of the Act and relevant case laws as discussed above, it is held that notice u/s 148 of the Act was validly issued in this case. Accordingly, ground no. 1 challenging the reopening of the assessment is DISMISSED.”
5. Now coming to solitary meritorious ground number 4 whereby the appellant alleged that, Ld. AO has not conclusively proved the receipt of share application money as not genuine or bogus or sham. It is apt to state here that, three-tier onus i.e. identification, creditworthiness and genuineness relating to entries credited in the books of account lies with or shouldered on the claimant assessee. In case assessee fails to discharge this three-tier onus in a row for each of the credit transactions undertaken by the appellant in any previous year, then such failure would not create any negative onus on the Revenue. That is to say failure of appellant to prove creditworthiness and genuineness do not confer a right against the Revenue to prove otherwise. The moment appellant assessee fails to prove creditworthiness of subscriber and genuineness of transaction with cogent and satisfactory evidences, this de-facto sufficient to hold the credit transaction as sham or bogus and nothing more is required to prove it. Therefore, the appellant’s ground in our considered view prima-facie is meritless thus deserves to be dismissed.
6. In addition to above, in so far as merits of the case is concerned, we observed that in absence of cogent material to prove credit worthiness and genuineness of share application/subscription transaction qua cash credit, the Ld. CIT(A) pressing into service catena of judicial precedents and threadbare discussion dilated from para 18 to 22 (placed at page 22 to 36, reproduction of which deemed unnecessary) have upheld the addition concurring with tax authority below as;
“23. Coming to the facts of the present case, a perusal of page 7 and 8 of the assessment order clearly suggests that the appellant could not satisfactorily reply to many of the queries raised by the Assessing Officer. Further, the Assessing Officer issued various notices to M/s SIL and ABIL, however, all the notices were returned unserved / unclaimed/not known/insufficient address, etc. When confronted with the appellant he provided fresh addresses. Although, replies were received from these companies from fresh addresses but the reply contained only basic information and most of the information was not provided by these two companies by saying that there has been a change in management. The Assessing Officer has discussed these issues on page 10, 11 and 12 of the assessment order.
In short, the appellant has only provided the paper documents however as discussed earlier that on several occasions, various courts including Hon. Supreme Court have held that in the case of private placement of shares, the make-believe documents are not sufficient. The appellant has relied on the decision of Hon. Supreme Court in the case of Lovely Exports (supra), however, in the subsequent decision of NRA Iron (supra), the Hon. Supreme Court after considering the decision in the case of Lovely Exports (supra) have held that in case of private placement of shares, a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee and the Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee. In the present case, during the appellate proceedings, the appellant has relied merely on case laws however it has not made any effort to substantiate the creditworthiness of these two companies and the genuineness of the transaction. In fact, no document such as confirmation, copy of ITR, copy of bank statement, copy of Financial Statement, etc, of these creditors have been filed before me. The Assessing Officer has already held that the creditworthiness of these companies remains unsubstantiated and a number of queries regarding the genuineness of transactions remained unanswered. For example, the Assessing Officer wanted to know that how the transaction between a Kolhapur based company and Kolkata based companies was arranged, how the premium was worked out, copies of correspondence prior to this investment, whether the said companies have sold shares to any person related to the appellant company and at what rate the shares were transferred by M/s SIL and ABIL to these persons. These questions are very relevant in order to ascertain the genuineness of the transaction under dispute, however as noted by the Assessing Officer, these important questions remained unanswered. Considering the totality of facts of the case, we are of the considered opinion that the appellant has failed to prove the creditworthiness of the companies from whom amount of Rs.3,00,00,000/- was received and also has failed to substantiate the genuineness of transaction. Accordingly, the addition of Rs.3,00,00,000/- made by the Assessing Officer u/s 68 of the Act is upheld.”
(Emphasis supplied)
7. It is not out of box to state that, even in the present proceedings, the appellant other than making bald claims did place no cogent material on record to showcase the creditworthiness of companies based out of Kolhapur which subscribed alleged 2000 shares of face value of ₹1000/-each at a premium of ₹14000/-each in the appellant’s company. Further, apart from making bare assertion that share subscription routed through banking channel, the appellant failed to discharge casted onus of proving genuineness of impugned transaction with convincing material on record. Therefore, in our considered view, the addition made u/s 68 of the Act and confirmed by Ld. CIT(A) do not call for any change in view of decision of Hon’ble Apex Court in ‘PCIT Vs NRA Iron & steel’ reported in 412 ITR 161(SC).
8. In view hereof we deem not necessary to multiply authorities on this point. In result we neither find any merits in the ground raised nor any reasons to interfere with the impugned order under challenge. Ergo this ground also stands dismissed.
9. In result, the appeal of the assessee is DISMISSED.
In terms of rule 34 of ITAT Rules, order pronounced in open court on this Tuesday 12th day of December, 2023.
Author Bio
The adjudication from the Tribunal seems correct. Our assessee are to trained to make foolproof evidence for any such transaction before hand.