Re-assessment based on information from DIT(Inv.)-II office is sustainable

Minakshi Builders Vs CIT (ITAT Pune)

ITAT Pune held that information from the office of DIT (Inv.)-II is a tangible information enabling AO to form a belief that income has escaped assessment and hence proceedings of re-assessment justified.

Facts- Based on the information that appellant is a beneficiary of accommodation entries of bogus unsecured loan and advances, a notice u/s 148 of the Income Tax Act, 1961 was issued and the case was taken for scrutiny assessment.

Despite several notices of hearing, the appellant only provided a bald explanation stating that the loans and advances were booking advance of the flats. He only filed copies of Balance Sheet, Deed of Partnership of appellant and confirmation letters of closing balance as on 31.12.2012 in his books of account. The assessee had not discharged the onus of proving the genuineness of the transactions, identity of creditors and creditworthiness of the investors to make the investment in question to the satisfaction of AO. Therefore, AO had brought to tax the accommodation entries and completed the assessment vide order dated 3 1.03.2015 passed u/s 144 r.w.s. 147 of the Act.

Being aggrieved, an appeal was filed before the ld. CIT(A) which was dismissed. Being aggrieved, the present appeal is filed.

Conclusion- AO, on receipt of the information from the DIT (Inv.)-II, Mumbai that the appellant is beneficiary of the accommodation entries of bogus loans and advances from one Mr. Bhawarlal Jain Group formed an opinion that the income had escaped assessment to tax and issued a notice u/s 148 as the appellant had not filed any return of income. This information constitutes a tangible information enabling the Assessing Officer to form a belief that the income chargeable to tax had escaped assessment and the proceedings of the re-assessments are justified and valid in law

In the present case also, the appellant deliberately withheld the information from the Assessing Officer as well as the ld. CIT(A) which is within exclusive knowledge of appellant to establish the genuineness of transactions of purchase of shares of that company. It is nothing but a fraud played by the appellant against the Assessing Officer as well as the ld. CIT(A) who are quasi judicial authorities employed for execution of the provisions of the Income Tax Act. Therefore, the principle of fraud can be squarely applied to the facts of the present case and principles of natural justice have no application.

FULL TEXT OF THE ORDER OF ITAT PUNE

These are the appeals filed by the assessee directed against the common order of ld. Commissioner of Income Tax (Appeals)-2, Pune [‘the CIT(A)’] dated 20.01.2020 for the assessment years 2007-08 to 2012-13 respectively.

2. Since the identical facts and common issues are involved in all the above captioned six appeals, we proceed to dispose of the same by this common order.

3. For the sake of convenience and clarity, the facts relevant to the appeal in ITA No.447/PUN/2020 for the assessment year 2007-08 are stated herein.

4. The appellant raised the following grounds of appeal :-

“1. The LD ITO, Ward 1 Ahmednagar has wrongly made the additions of Rs 15,00,000 to the returned income for AY 2007-08 towards unexplained cash credit u/s 69A of the IT Act , inspite of the fact that, the loan /advance obtained by the appellant by crossed account payee cheques and the said loan/advance were supported with confirmation and the identity of the creditors has been proved through Tax PAN No held by the creditors. Therefore the said additions made by AO is not justified and the same may please be deleted.

2. The LD AO has wrongly made the above said addition ignoring the confirmation and ignoring facts that identity of creditors has been proved through their income tax PAN no and creditors are financially

3. Looking to the facts & circumstances of the case the LD ITO ward 1 Ahmednagar has wrongly charged interest of Rs.9,49,212/- u/s 234A/B of IT Act consequent to the above said wrong addition and therefore the interest may please be deleted.

4. The appellant may please be allowed to ADD/Alter/Amend any ground of appeal.”

5. Briefly, the facts of the case are as under :-

The appellant is an individual engaged in the business of Builders, Promoters and Real Estate. No Return of Income was filed for the assessment years 2007-08 to 2012-13. The Assessing Officer received information from the office of the DIT (Inv.)-II, Mumbai that the appellant is a beneficiary of accommodation entries of bogus unsecured loans and advances provided by one Bhawarlal Jain Group. The said accommodation entries were received during the assessment years 2007-08 to 2012-13. As per the said information, such bogus unsecured loans and advances entries provide by said broker, Bhawarlal Jain Group, the details of which are as under :-

6. Based on the above information, a notice u/s 148 of the Income Tax Act, 1961 (‘the Act’) was issued and served on 3 1.03.2014 and the case was taken for scrutiny assessment. Despite several notices of hearing, the appellant only provided a bald explanation stating that the loans and advances were booking advance of the flats. He only filed copies of Balance Sheet, Deed of Partnership of appellant and confirmation letters of closing balance as on 31.12.2012 in his books of account. The assessee had not discharged the onus of proving the genuineness of the transactions, identity of creditors and creditworthiness of the investors to make the investment in question to the satisfaction of the Assessing Officer. Therefore, the Assessing Officer had brought to tax the accommodation entries and completed the assessment vide order dated 3 1.03.2015 passed u/s 144 r.w.s. 147 of the Act.

7. Being aggrieved by the above assessment order, an appeal was filed before the ld. CIT(A) contending that the loans and advances were obtained through crossed account payee cheques and the appellant had discharged the onus by filing the confirmations. Before the ld. CIT(A), the assessee also contested the very validity of the re-assessment and filed certain additional evidence in the form of cash receipts issued to the appellant by M/s. Kothari and Company under little diamond etc. This additional evidence was confronted to the Assessing Officer by the ld. CIT(A). The ld. CIT(A) dismissed the appeal by holding that mere receipt of the loans by crossed account payee cheques is not sacrosanct to prove the genuineness of the credit in the books of accounts placing reliance on the decision of the Hon’ble Calcutta High Court in the case of CIT vs. Precision Finance (P.) Ltd., 208 ITR 465 (Cal.) and CIT vs. United Commercial & Industrial Co. (P.) Ltd., 187 ITR 596 (Cal.). Invoking the doctrine of human probabilities and taking cognizance of surroundings circumstances, the ld. CIT(A) dismissed the appeal of the assessee.

8. Being aggrieved by the decision of the ld. CIT(A), the appellant is in appeal before us in the present appeal contending inter-alia that the loans and advances in question were obtained by crossed account payee cheques supported by the confirmation letters and identity of the creditors has been proved by filing the PAN Card Therefore, the ld. CIT(A) was not justified in confirming the additions made by the Assessing Officer.

9. When the appeal was called on, none appeared on behalf of the appellant-assessee despite due service of notice of hearing. On the date of hearing, a petition for adjournment was moved in the name of Saideep, Healthcare of Research Pvt. Ltd. Viraj Estate, Yashwant Colony, Near DSP Chowk, Ahmednagar-414003, the image of photocopy of the said petition is reproduced herein below :-

“To,

Hon ’ble ITAT,

A -Bench, Pune

Respected Sir,

I am supposed to attend the case of Minaxi Builders vide ITA No. 447 to 452/P UN/2020 which is fixed today before your honours.

However, I have caught with Viral fever with Dengue yesterday night only and advised to take treatment as well as rest for 15 days. The copy of medica certificate is attached herewith. Hence would not be in a position to attend today’s hearing due to this unavoidable reason. Kindly apologies for the same.

Hence, your honour is kindly request to allow adjournment for the said case. I would be highly obliged for the same.

Requested to do the needful.

10. We have gone through the record and find there is no power of attorney executed in favour of the said person by the appellant and there are no details such as who is to represent this matter and who was suffering from viral fever etc and also taking into consideration, this matter was adjourned at the request of the assessee on several occasions, earlier, the issue in the appeal is no more res integra, we proceed to dispose of this appeal on merits.

11. The appellant had filed the written submissions contending that reopening of assessment is bad in law as the Assessing Officer had reopened the assessment on borrowed satisfaction and placed reliance on the following decisions : –

(i) PCIT vs. hodiman Investments (P.) Ltd., 422 ITR 337 (Bom.).

(ii) PCIT vs. Meenakshi Overseas (P.) Ltd., 395 ITR 677 (Delhi).

And also by raising the following additional grounds of appeal :-

“Gr. No. 5 : The Hon ’ble CIT(A) is not justified in upholding and confirming the additions made by the Ld. Assessing Officer without considering the fact that there was mechanical approval of the Joint CIT with regard to reopening of the case under section 148 and as such, proceedings are liable to be quashed in view of the judgment of Hon ‘ble Apex Court in the case of S. Goyanka Lime and Chemical Ltd. as reported in 237 Taxman 0378 (SC). Thus, the assessment order becomes bad in law and hence the impugned additions may please be deleted.

Gr. No. 6 : The Hon ’ble CIT(A) is not justified in upholding and confirming the additions made by the Ld. Assessing Officer since the Ld. Assessing Officer has reopened the proceedings only on the borrowed satisfaction and without application of own mind showing live nexus between the information received and the alleged escapement of income.”

12. On the other hand, ld. Sr. DR submits that the assessment order passed in the case of Mr. Bhawarlal M. Jain, who is the provider of bogus accommodation entries to the appellant was confirmed by “B” Bench of Mumbai, ITAT on 06.08.202 1 taking cognizance of the statement on oath of the said person u/s 132(4), wherein, he had categorically admitted that he was engaged in providing accommodation entries through 17 benamies concerns operated and controlled by said Bhawarlal M. Jain. The appellant is one of such beneficiaries of entries provided by said Bhawarlal M. Jain

13. We heard the ld. Sr. DR and perused the material on record. The issue that arises for our consideration in the present appeal is whether or not in the facts of the case the loans and advances credited in the books of the appellant company are genuine. The Assessing Officer, on receipt of the information from the DIT (Inv.)-II, Mumbai that the appellant is beneficiary of the accommodation entries of bogus loans and advances from one Mr. Bhawarlal Jain Group formed an opinion that the income had escaped assessment to tax and issued a notice u/s 148 as the appellant had not filed any return of income. This information constitutes a tangible information enabling the Assessing Officer to form a belief that the income chargeable to tax had escaped assessment and the proceedings of the re-assessments are justified and valid in law as held by the Hon’ble Gujarat High Court in the case of Amar Jewellers Ltd. vs. ACIT, 444 ITR 148 (Guj.), Hon’ble Bombay High Court in the case of shrikant Phulchand Bhakkad (HUF) vs. JCIT, 137 taxmann.com 445 (Bom.) and Hon’ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers (P.) Ltd., 291 ITR 500 (SC). Therefore, the additional ground of appeal filed by the assessee stands dismissed.

14. As regards to the merits of addition, on perusal of the assessment order, it would reveal that the appellant despite the fact that the appellant was afforded several opportunities had failed to discharge the onus of proving by cogent and reliable evidence of identity of the creditors, creditworthiness of the creditors/investors and genuineness of the transactions to the satisfaction of the Assessing Officer. Needless to say that the onus lies upon the assessee to establish these factors and mere furnishing of list of persons, who claimed to have advanced money to the appellant would not constitute sufficient compliance with the onus placed on the assessee. The Hon’ble Supreme Court in the case of PCIT vs. NRA Iron & Steel (P.) Ltd., 412 ITR 161 (SC) referring to its earlier precedent on the subject and summarized the principles on the issue vide para 11 of the said judgment is reproduced hereunder : –

“11. The principles which emerge where sums of money are credited as Share Capital/Premium are :

i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit­worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus.

ii. The Assessing Officer is duty bound to investigate the credit‑ worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders.

iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established.

In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act.”

15. From the facts of the present case, which are set out in the assessment order, it would be clear that the appellant had failed to discharge the onus casts upon him to prove the genuineness of the transactions, identity of the creditors and creditworthiness of the creditors/investors who should have financial capacity to make the advance in question to the satisfaction of the Assessing Officer. Therefore, the ratio of the decision of the Hon’ble Supreme Court in the case of NRA Iron & Steel (P.) Ltd. (supra) is squarely applicable to the facts of the present case. Even the Hon’ble Delhi High Court in the case of PCIT vs. NDR Promoters (P.) Ltd., 410 ITR 379 (Delhi), wherein, it was held that when the Assessing Officer was made addition u/s 68 in respect of the amount received as share capital of several companies which was in-fact maintained/operated by one person who is indulged in providing the accommodation entries are held to be justified. Similarly, the Hon’ble Madras High Court in the case of PCIT vs. SRM Systems and Software (P.) Ltd., 433 ITR 111 (Mad.) and CIT vs. Midas Golden Distelleries (P.) Ltd., 441 ITR 293 (Mad.), in cases involving identical facts confirmed the addition u/s 68 reversing the orders of the Tribunal. Thus, we are of the considered opinion that the ratio of the above decisions are squarely applicable to the facts of the present case.

16. There is yet one more reason as to why we are inclined to confirm the addition made by Assessing Officer, in view of the well settled principle of law that fraud vitiate everything and even principles of natural justice have no application and such transaction is void ab initio. The Hon’ble Supreme Court in the case of Friends Trading Co. vs. Union of India in Civil Appeal No.5608 of 2011 vide order dated 23.09.2022 held in the context of availment of alleged forged DEPB under the Customs Act, wherein, it was found DEPB licenses were forged and it was held that the exemption benefit availed on such forged DEPB is void ab initio on the principle that fraud vitiate everything and the period of limitation was held to have no application and the Department was held to be justified in invoking the extended period of limitation and the fact that whether the beneficiary had no knowledge of about the fraud/forged and fake DEPB licenses have no bearing the imposition of custom duty. The ratio of judgement is squarely applicable to the transaction under consideration before us. Further, the application of principle of the fraud under judicial Acts was considered by the Hon’ble Supreme Court in the case of Smt. Badami (Deceased) By her L.R. vs. Bhali in Civil Appeal No.1723 of 2008 dated 22.05.2012, wherein, the Hon’ble Apex Court held as follows :-

“20. In S. P. Chengalvaraya Naidu (dead) by L.Rs. v. Jagannath (dead) by L.Rs. and others [AIR 1994 SC 853] this court commenced the verdict with the following words:-

““Fraud-avoids all judicial acts, ecclesiastical or temporal” observed Chief Justice Edward Coke of England about three centuries ago. It is the settled proposition of law that a judgment or decree obtained by playing fraud on the court is a nullity and non est in the eyes of law. Such a judgment/decree – by the first court or by the highest court – has to be treated as a nullity by every court, whether superior or inferior. It can be challenged in any court even in collateral proceedings.”

21. In the said case it was clearly stated that the courts of law are meant for imparting justice between the parties and one who comes to the court, must come with clean hands. A person whose case is based on falsehood has no right to approach the Court. A litigant who approaches the court, is bound to produce all the documents executed by him which are relevant to the litigation. If a vital document is withheld in order to gain advantage on the other side he would be guilty of playing fraud on court as well as on the opposite party.

22. In Smt. Shrist Dhawan v. M/s. Shaw Brothers [AIR 1992 SC 1555] it has been opined that fraud and collusion vitiate even the most solemn proceedings in any civilised system of jurisprudence. It has been defined as an act of trickery or deceit. The aforesaid principle has been reiterated in Roshan Deen v. Preeti Lal [AIR 2002 SC 33], Ram Preeti Yadav v. U. P. Board of High School and Intermediate Education and other [(2003) 8 SC 311] and Ram Chandra Singh v. Savitri Devi and others [(2003) 8 SCC 319].

23. In State of Andhra Pradesh and another v. T. Suryachandra Rao [AIR 2005 SC 3110] after referring to the earlier decision this court observed as follows:-

“In Lazaurs Estate Ltd. v. Beasley [(1956) 1 QB 702] Lord Denning observed at pages 712 & 713, “No judgment of a Court, no order of a Minister can be allowed to stand if it has been obtained by fraud. Fraud unravels everything.” In the same judgment Lord Parker LJ observed that fraud vitiates all transactions known to the law of however high a degree of solemnity. ”

24. Yet in another decision Hamza Haji v. State of Kerala & Anr. [AIR 2006 SC 3028] it has been held that no court will allow itself to be used as an instrument of fraud and no court, by way of rule of evidence and procedure, can allow its eyes to be closed to the fact it is being used as an instrument of fraud. The basic principle is that a party who secures the judgment by taking recourse to fraud should not be enabled to enjoy the fruits thereof.”

17. In the present case also, the appellant deliberately withheld the information from the Assessing Officer as well as the ld. CIT(A) which is within exclusive knowledge of appellant to establish the genuineness of transactions of purchase of shares of that company.

It is nothing but a fraud played by the appellant against the Assessing Officer as well as the ld. CIT(A) who are quasi judicial authorities employed for execution of the provisions of the Income Tax Act. Therefore, the principle of fraud can be squarely applied to the facts of the present case and principles of natural justice have no application. Applying the said doctrine, we have no hesitation to hold that the transaction of purchase and sale of shares of SRK Industries under consideration before us is void ab-initio, this is nothing but sham, make believe and colourful device adopted with excellent paper work with intention bringing the undisclosed income into books of account. Accordingly, we confirm the orders of the Assessing Officer as well as the ld. CIT(A) and find no merits in the appeal preferred by the assessee before us. Hence, the grounds of appeal filed by the assessee stand dismissed.

18. In the result, the appeal of the assessee in ITA 447/PUN/2020 for A.Y. 2007-08 stands dismissed.

ITA Nos.448 to 452/PUN/2020,

A.Ys. 2008-09 to 2012-13 :

19. Since the facts and issues involved in the above appeals in ITA Nos.448 to 452/PUN/2020 for A.Ys. 2008-09 to 2012-13 are identical, therefore, our decision in ITA No.447/PUN/2020 for A.Y. 2007-08 shall apply mutatis mutandis to the appeal of the assessee in ITA Nos.448 to 452/PUN/2020 for A.Ys. 2008-09 to 2012-13 respectively. Accordingly, the appeal of the assessee in ITA Nos.448 to 452/PUN/2020 for A.Ys. 2008-09 to 2012-13 stands dismissed.

20. To sum up, all the above six captioned appeals filed by the assessee stand dismissed.

Order pronounced on this 22^nd day of November, 2022.