IN THE INCOME TAX APPELLATE TRIBUNAL,
DELHI BENCH: ‘E’ NEW DELHI
BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER
AND
SHRI KULDIP SINGH, JUDICIAL MEMBER
[Through Video Conferencing]
ITA No.6862/Del./2018
Assessment Year: 2009-10
OMKAM DEVELOPERS LTD., Vs. ITO,
702, Arunachal Building, 19, Ward-19(1),
Barakhamba Road, New Delhi
Connaught Place,
New Delhi
PAN :AAACO5036B
(Appellant) (Respondent)
And
ITA No.7507/Del./2018
Assessment Year: 2009-10
ITO, Vs. OMKAM DEVELOPERS LTD.,
Ward-19(1), 702, Arunachal Building, 19,
New Delhi Barakhamba Road, Connaught
Place,
(Appellant) New Delhi
PAN :AAACO5036B
(Respondent)
Assessee by Shri Neeraj Mangla, CA
Department by Ms. Pramita M. Biswas, CIT(DR)
Date of hearing 15.04.2021
Date of pronouncement 11.05.2021
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ORDER
PER O.P. KANT, AM:
These cross appeals by the assessee and the Revenue are
directed against order dated 11/09/2018 passed by the Learned
Commissioner of Income-tax (Appeals)-XXV, New Delhi [in short ‘the Ld.
CIT(A)’] for assessment year 2009-10.
2. The grounds raised by the assessee in its appeal (i.e. ITA No.
6862/Del/2018) are reproduced as under:
1. That the assessment order passed u/s 143(3)/147 of the Income Tax
Act, 1961 on 30/03/2015 which is subsequently upheld by the Ld.
CIT(A) is perverse to the law and to the facts of the case because of
getting and granting the approval by the concerned / competent
authority in a mechanical manner u/s 151 of the Income Tax Act, 1961
as against the law and to the facts of the case.
2. That the assessment order passed u/s 143(3)/147 of the Act and
upheld by the Ld. CIT(A) is also not tenable because of invoking
provisions of law contained u/s 147 of the Act, without having any of his
independent satisfaction thereupon, to the information received m the
Investigation Wing of the Department.
3. That the assessment order passed u/s 143(3) of the Act and upheld by
the Ld. CIT(A) is wither not tenable under the law because the additions
made on the basis of information received from Investigation Wing of
the Department, on the basis of which reasons for reopening were
recorded and the reassessment proceedings were invoked, have been
deleted by Ld. CIT(A).
4. That the Ld. CIT(A) grossly erred in law in confirming the additions of
Rs. 99,98,400/- out of the additions amounting to Rs. 64,66,80,000/-
made by the Ld. AO u/s 68 of the Income Tax Act, 1961 despite the fact
that the appellant company has discharged the burden complete in all
respects as has been prescribed u/s 68 of the Income Tax Act 1961, d
all evidences were produced and placed upon records.
5. That the Ld. CIT(A) grossly erred in confirming the addition of
commission @ 2% on the addition sustained u/s 68 of the Act, despite
the fact that the Ld. AO has not brought any material evidence for the
same on the record, having nexus to the income determined.
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6. That the appellant assails his right to amend, alter, change any grounds
of appeal or take any further ground at any time even during the course
of hearing of instant appeal.
3. The grounds raised by the Revenue in its appeal (i.e. ITA No.
7507/Del/2018) are reproduced as under:
1. Whether on the facts and circumstances of the case and in law, the Ld.
CIT(A) has erred in deleting the addition of Rs. 64,94,15,232/- made by
the Assessing Officer on account of unexplained credits u/s 68 of the
Income-tax Act, 1961 on account of share capital/share premium in its
books of accounts and commission paid thereon, despite the fact thn*
he assessee was not able to establish the creditworthiness of the
creditors and genuineness of transactions as required under section 68
of the Income- tax Act, 1961?"
2. Whether on the facts and circumstances of the case and in law, the Ld.
CIT(A) has erred in deleting the said addition despite the fact that most
of the notices u/s 133(6) of the Act sent to the 80 subscriber companies
were either received back unserved or no reply was received; most of
the e-mails sent to them had bounced back; status of most of the
subscriber companies on MCA website was either struck-off or inactive
and in response to commission issued under section 131(1)(d) of the
Act to the DDIT (Inv.), Unit-3(4), Kolkata, he reported that no such
company. M/s Joyprit Hotels Pvt. Ltd. or M/s Joyprit Plastic Builders
Pvt. Ltd., existed at the addresses in Kolkata, provided in the
confirmations received from them and genuineness of transactions ane
Tidentity and creditworthiness of the creditors cannot be proved merely
on paper?”
3. Whether on the facts and circumstances of the case , the Ld. CIT(A)
has erred in deleting the said addition by relying upon the decision in
the case of PCIT, Delhi-2 vs Best Infrastructure India Pvt. Ltd. in IT A
No. 13/2017. who§e facts are totally different from that of the present
case and in that case the Hon’ble High Court has upheld the action of
the IT AT in deleting the addition made under section 68 of the Act on
the basis of statements of assessee’s directors during the course of
search under section 132 of the Act in absence of any other
incriminating evidence found /seized during the course of the search to
substantiate addition made by the AO during the course of assessment
proceedings under section 153A of the Act?.
4. The appellant craves to be allowed to add and alter any fresh ground(s)
of appeal and / or delete any of the ground(s) of appeal.”
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4. Briefly stated facts of the case in chronological order as culled out
from the orders of lower authorities are that:
(i) the assessee claimed to have engaged in building and
developing of Real Estate. During the year, the assessee
company received investment from 80 entities in share
capital of Rs.64,66,80,000/-against subscribers of 77,800
shares having face value of Rs. 10 each at a share premium
of Rs.590/- per share.
(ii) the assessee filed its return of income for the year under
consideration u/s 139(1) of Income-tax Act, 1961 (in short
‘the Act’) on 30/03/2010, declaring income of Rs.2,389/-. The
return was processed u/s 143(1) of the Act.
(iii) subsequently, on receipt of information from the Investigation
Wing of Income Tax Department, Kolkata that assessee was
one of the beneficiary of the accommodation entries received
of ₹ 193 lakhs, the Assessing Officer recorded reasons to
believe that income of ₹ 193 lakhs had escaped assessment
for the year under consideration and issued notice dated
22/03/2016 under section 148 of the Act asking the assessee
to file return of income.
(iv) in response, the assessee filed return of income on
20/04/2016, declaring income of Rs.2,389/-.
(v) the assessee and its Authorized Representative were
provided a copy of reasons recoded on 6/07/2016;
22/07/2016, along with a copy of the approval granted by the
Principal CIT under section 151 of the Act.
(vi) the Assessing Officer issued statutory notices under the Act
for commencing scrutiny proceedings. During the
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proceedings on 16.08.2016, the assessee filed details of
subscribers of share capital, including name and address.
(vii) the objections raised by the assessee against the reopening
of the assessment on 23/11/2016 and 06/12/2016 were
disposed off by the Assessing Officer on 28/11/2016 and
09/12/2016 respectively. The Assessing Officer also provided
complete Annexures to the reasons recorded on 28/11/2016
but the request of the assessee to allow cross examination of
the witnesses was denied at that stage.
(viii) the assessee vide letter dated 14/12/2016 and 16/12/2016
filed detailed confirmation of account, latest address, bank
statements, copy of acknowledgement of Income Tax Return,
certificate of incorporation along with Memorandum of
Association (MOA) and Article of Association (AOA) of all
share subscriber companies.
(ix) the Assessing Officer for verification of shares subscriber
issued notice under section 133(6) of the Act to all 80 share
subscribers. On 27/12/2016, the Assessing Officer informed
the assessee that some of the notices were returned
unserved and other remained uncomplied and thus he asked
the assessee to produce Director(s) of all the 80 subscriber
entities. The assessee failed to produce Directors of the
shares subscriber companies, however, objected for issue of
the notice under 133(6) at the old addresses of the
subscribers and, requested not to draw adverse inference.
(x) the Assessing Officer also issued a commission under
section 131(d) of the Act to the Deputy Director of Income
Tax (Investigation)- Kolkata for enquiring existence of to
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share subscribers, namely, M/s Joyprit Hotels P. Ltd. and
M/s. Joyprit Plastics Dealers Private Limited. The enquiry
report has been reproduced in the assessment order,
wherein companies were not found in existence at the
address provided.
(xi) the Assessing Officer supplied a copy of statement of Sri
Pramod Ramden Sharma and Sh. Praveen Kumar Agrawal,
wherein Sh. Pramod Ramdin Sharma admitted of using two
of the share subscribers, i.e., M/s Joyprit Hotels P.Ltd. and
M/s. Joyprit Plastic Dealers P. Ltd., for providing
accommodation entries. The assessee, on the other hand,
obtained a sworn affidavit from Sh. Pramod Ramdin Sharma
and furnished in the office of the Assessing Officer on
21/12/2016. The affidavit mentioned that investment made by
both those shares subscriber companies were out of
disclosed sources. The Assessing Officer stated that in view
of paucity of time, he could not act upon the affidavit.
(xii) the Assessing Officer has reproduced statement of Sh.
Pramod Ramdeen Sharma, who was Director of those
companies. His statement was recorded by the Investigation
Wing, Kolkata, in the year 2014. In said statement, Sh.
Pramod Ramdeen Sharma admitted of working as an
employee in the office of Sh. Praveen Agrawal and was only
a dummy director in number of companies, including those
two companies. The Assessing Officer also carried out
inquiries from Registrars of companies regarding share
subscriber companies and found that many companies were
not active.
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(xiii) on the basis of the inquiries conducted and the information
gathered, the Assessing Officer concluded that share
subscriber companies were not in existence, not having their
own profit-making apparatus and money was only rotated
through those companies. He accordingly, treated the entire
share capital and share premium totalling to ₹ 64,66,80,000/-
as unexplained cash credit in terms of section 68 of the Act,
in view of failure of the assessee to establish identity,
creditworthiness of shares subscriber companies and
genuineness of the transaction of cash credit. He also made
addition for the commission at the rate of 2% presumed to
have been paid for obtaining the accommodation entries from
entry operators, which was worked out at₹ 1,29,63,600/-. In
this manner, the Assessing Officer made total addition of ₹
65,96,13,600/- under section 68 of the Act in the assessment
order dated 29/12/2016 under section 147 read with section
143(3) of the Act.
(xiv) Before the Ld. CIT(A), the assessee challenged
reassessment assessment proceeding on the ground of
borrowed satisfaction, approval granted in mechanical
manner, completion of assessment without jurisdiction, non-
disposal of objections filed against reopening of assessment,
non-examination of persons named in reasons recorded,
change of opinion, cross-examination of witnesses not
allowed, additions made against the law and the procedure
specified, notice under section 133(6) of the Act issued at old
addresses of subscriber companies, non-adjudication of the
evidences furnished by the assessee, show cause notice not
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issued/served etc. The assessee also challenged addition on
merit. The assessee during first appellate proceedings
submitted that fact of the case of the assessee are identical
to the facts in the case of CIT Vs Gagan Deep
Infrastructure Private Limited i.e. judgment of Hon’ble
Bombay High Court in ITA No. 1613 of 2014. The
assessee also compared its facts with the facts in the case of
Prabhatam Investment Private Limited Vs. ACIT decided
by the Tribunal in ITA No. 2525/Del/2015. The assessee
also challenged validity of the reassessment proceeding
under section 147 of the Act in view of a specific provision
under section 153C of the Act for dealing such allegations.
(xv) The Learned CIT(A) considered submission of the assessee,
however, rejected its contention on the validity of
reassessment proceedings. The Ld. CIT(A) upheld the
validity of the reasons recorded as well as upheld approval
granted by the learned Pr. CIT for issue of the notice under
section 148 of the Act. On the issue of the merit of the
addition, the Ld. CIT(A) considered the documents filed by
the assessee for discharging its onus under section 68 of the
Act, which included copy of acknowledgement of the
income-tax return filed by the share subscribers stating their
permanent account number (PAN), relevant extract of bank
statement of subscribers, company master data available
with the Registrar of Companies in respect of the subscriber
companies. The Ld. CIT(A) relied upon decision of the
Tribunal in the case of M/s Prabhatam Investment Private
Limited (supra). In view of the decisions relied upon, the Ld.
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ITA No.6862/Del./2018 &
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CIT(A) analyzed the documents furnished by assessee in
case of each subscriber and concluded that except four
share subscribers, identity, creditworthiness and
genuineness of the transaction of remaining share
subscribers was established. The Ld. CIT(A) has produced a
table in the impugned order containing name and documents
filed in respect of all the share subscribers including
availability of investible funds with share subscriber
companies. In case of four subscribers, namely, M/s
Achievers Landcons P. Ltd., Cerastium Private Limited, Flair
Buildmart Private limited and U-turn Construction Private
Limited, Investible funds of ₹ 1,02,500/- was found in case of
each company, and therefore, he concluded that those four
companies failed on the test of creditworthiness. Accordingly,
on merit he upheld the addition of ₹ 99,98,400/- ( =24,99,600
x4 ) under section 68 of the Act and also corresponding
commission at the rate of 2%. In respect of the balance share
subscription, the Ld. CIT(A) deleted the addition observing as
under:
“Respectfully following the above judgment, which is on
similar factual matrix, it can be reasonably inferred that
material found during the search in respect of the equity
received by the assessee cannot lead to the conclusions
drawn by the AO. No specific corroborative evidence has
been brought on record by the AO to prove that the equity
subscription is an accommodation entry. Besides, appellant
has also discharged its onus and submitted all the
documentary evidence in respect of the investment. The
details submitted in this regard by the appellant have also
been made part of order by Assessing officer. It is also
undisputed fact that the director of the appellant companies
have never made any statement regarding the share capital /
share premium / share application money and no disclosure
have been made with regard to share capital / share
premium / share application money / unsecured loan. As
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ITA No.6862/Del./2018 &
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such, the addition made by the Assessing officer is
unsustainable on the various legal grounds and on facts of
the case. Basis, the submission of the Appellant, facts and
various judgment as per discussions supra, addition of Rs
63,66,81.600 is deleted out of total addition U/s 68 of the
Income Tax Act 1961. The addition @of 2% on alleged
commission paid to Entry operator is also deleted on pro-
ratum basis, in view of the foregoing.”
5. Before us, both the parties appeared through Video Conferencing
facilities. The assessee filed a paper-book in two volumes (Pg- 1 to 316
and Pg. 1 to 55) through emails.
6. The Learned Counsel of the assessee challenging the validity of
reassessment proceedings supported ground No. 2 of the appeal. He
referred to copy of the reasons recorded for reopening available at Pg.
19-23 of PB-1 and the information on the basis of which, reasons were
recorded, available at Pg. 24-29 of PB-1.He referred to money trail
reported by the Investigation Wing of Kolkata in various Annexures
appended to reasons recorded. According to him, the Investigation Wing
reported cash deposit of Rs. 15.26 crores in 7 bank accounts maintained
by six proprietary concerns (concerns listed in Annexure-C). This amount
was then transferred by cheques/RTGS into bank accounts of entities i.e.
proprietary concerns, listed in Annexure C-1. Thereafter, the money
travelled to bank accounts of entities listed in Annexure-I. Then, money
travelled further to entities listed in Annexure-S and finally the money
landed in bank accounts of 21 entities i.e. the real beneficiaries, listed in
Annexure B. The total money of ₹ 23.49 crores has been claimed by the
Investigation Wing to have landed in bank accounts of entities listed in
Annexure-B. The name of the assessee company is also appearing in
the list of entities in Annexure- B and amount of ₹ 1.93 crore is shown to
have been received by the assessee company by way of cheque. In the
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reasons recorded, the Assessing Officer has referred to this amount of ₹
1.93 crore as accommodation entries received by the assessee.
6.1 The Ld. counsel argued that the cash deposits of Rs.15.26 crores
identified by the Investigation Wing of Income-tax Department is less
than the alleged amount of accommodation entries of Rs.23.46 crores,
which substantiates that the information is based on presumptions and
the Ld. AO without analyzing the same proceeded to record the reasons
for reopening of assessment proceedings in a mechanical manner.
6.2 He further, assailed the reasons recorded and submitted that from
the perusal of the information received and the reasons recorded by Ld.
AO, the assessment proceedings were initiated on the basis of
Suspicious Transaction Report (STR) in the case of Sh. Manohar
Jaykishan Shah. There was no reference of any other material. However,
as evident from the assessment order, the Ld. AO has relied upon
statements of Sh. Pramod Ramdin Sharma and Sh. Praveen Aggarwal
which were not the basis of recording of reasons. The same amounts to
modification of the reasons recorded and as per the guidelines issued by
the Hon’ble Jurisdictional High Court in the case of Sabh Infrastructure
Ltd. vs. ACIT (2017) 398 ITR 0198, no modification to the reasons
recorded could be possible.
6.3 The Learned Counsel further referred to reply dated
05.01.2021received from the Assessing Officer in response to queries
raised on 07.12.2020 (subsequent to the assessment proceedings)
under Right to Information (RTI) Act. He submitted that the Ld. AO in
reply to Q. No. 2(b) of RTI has stated that from perusal of bank
statements an amount of Rs.1.93 crore was found credited from M/s
Joyprit Hotel Pvt. Ltd and M/s Joyprit Plastic Dealers Pvt. Ltd. The
learned Counsel submitted that, however, on perusal of the bank
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statements of those two concerns, it was evident that the assessee
company received an aggregate amount of Rs.2.43 crore from those
concerns. According to the learned Counsel, the Assessing Officer had
not verified bank statements and only taken the figures of Rs. 1.93
Crores from the information supplied by the Investigation Wing.
6.4 The learned Counsel also submitted that from the reasons
recorded, it is evident that the Ld. AO even didn’t knew as to from which
entity the amount of Rs. 1.93 crores was received by the assessee
company.
6.5 He also submitted that reasons recorded are based on suspicion,
which is evident from the words used in reasons recorded, i.e., “it
appears that assessee M/s Omkam Developers Ltd. has received bogus
share capital/share premium to the tune of ₹ 1.93 Crores”. He further
submitted that reopening has been made on borrowed satisfaction of
Investigation Wing, Kolkata without bringing on record any material fact
substantiating that the assessee company was involved in the modus
operandi of receipt of accommodation entries. He submitted that the
Assessing Officer has just accepted the information in a mechanical
manner and failed to record an independent satisfaction.
6.6 It was submitted by the Learned Counsel that Hon’ble High Court
and Hon’ble ITAT has time and again held that recording of reasons after
due application of mind is sine qua non for valid notice u/s 148 of the Act.
Thus, he requested that the notice issued u/s 148 might be quashed and
consequentially the reassessment proceedings completed by Ld. AO
might be annulled following the Judgment of Hon’ble ITAT Delhi in the
case of Sh. Devki Nandan Bindal vs. ITO (ITA No. 4271/Del/2019 dt.
18/12/2019).
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7. In support of ground No.1, challenging the approval granted by the
LearnedPr.CIT, the learned Counsel referred to page 19 of the paper-
book (PB-1), which is a‘ Proforma’ of approval granted by the
LearnedPr.CIT. The Learned Counsel referred to Column No. 13 of said
Proforma and submitted that Learned Pr.CIT while granting approval has
put the word “Yes” in mechanical manner only, without taking into
consideration the material produced or available with him, which is not
permissible under the law. He also referred to Column No. 7 of the said
Proforma wherein relevant section for reopening has been quoted as
Section 147(b) of the Act, which is no longer in operation/existence.
7.1 He further submitted that the copies of the order sheet forming part
of the approval (available on page 23 of PB-1) accorded by the Learned
Pr.CIT do not have his signature. He submitted that all these
observations conclusively proves that approval under section 151 of the
Act is without application of mind and on the basis of said mechanical
approval given by the Pr. CIT-7, New Delhi, the notice has been issued
by the AO to the appellant company on 22.03.2016 u/s 148 of the I.T.
Act.
7.2 In support of his contention that in view of mechanical approval, the
orders passed u/s 147/143(3) by the Assessing Officer need to be
quashed, the Learned Counsel relied on the decision of the Hon’ble
Delhi High Court in the case of PCIT Vs NC Cable Ltd. in ITA 335/2015
and decision of the Tribunal Delhi bench in the case of Madhu
Apartment Private Limited in ITA No. 3869/Del./2018.
7.3 In support of ground No.3, the learned Counsel submitted that the
Ld. CIT(A) has accepted the genuineness of transactions of the
assessee company with M/s Joyprit Hotel Pvt. Ltd and M/s Joyprit Plastic
Dealers Pvt. Ltd.; the parties in respect of which Ld. AO claimed to have
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received the information. Since the order of Ld. AO has merged with the
order of Ld. CIT(A) and there didn’t existed any additions on the basis of
the reasons recorded for reopening of assessment proceedings; there
could not be any other additions which could be rightfully made by Ld.
AO or upheld by Ld. CIT(A).Reliance was placed on the judicial
pronouncements in following cases:
i. Ranbaxy Laboratories Ltd. vs. CIT, 336 ITR 136 (Delhi)(HC)
ii. CIT vs. Jet Airways Limited, 331 ITR 236 (Bombay)(HC)
iii. INS Finance & Investment Pvt. Ltd. vs. ITO, ITA No.
9266/Del/2019 dt. 26/10/2020 (Para 28 to 30; Page 162-163,
PB)
7.4 In support of ground no. 4 of appeal, the learned Counsel
submitted that the Ld. CIT(A) confirmed addition u/s 68 of the Act in
respect of four (4) subscribers on the pretext that those entities had
investible funds of only Rs. 1,02,500/- each. In this regard, he submitted
that the assessee company had furnished audited financials of those
subscribers for FY 2006-07 and couldn’t furnish audited financials for FY
2008-09, however, the fact of investment made by those companies was
verifiable from the perusal of bank statement and confirmation of
account.
7.5 In respect of capacity to pay it was submitted that by now it has
been judicially settled that it is not necessary that those funds must be
own funds or out of earnings but same could also be in the nature of
borrowings. (INS Finance & Investment Pvt. Ltd. vs. ITO, ITA No.
9266/Del/2019 dt. 26/10/2020, Pg. 133, PB1). Since those subscribers
have paid funds to the appellant and the stated facts of the case is not
being challenged, applying the ratio of several judicial pronouncements
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cited by the appellant in the appellate proceedings before Ld. CIT(A),no
additions was required to be made by Ld. AO to the income of the
assessee company.
7.6 Regarding the ground no. 5, the learnedCounsel submitted that
the addition of commission made by Ld. AO is on presumptions and
since the primary additions made by Ld. AO are not tenable under the
law, this, consequential additions of commission should also be deleted.
8. On the contrary, Learned DR relied on the order of the lower
authorities and submitted that Ld. CIT(A) is justified in rejecting the
contention of the assessee challenging the validity of the reassessment.
In support of her contention that material available with the Assessing
Officer was tangible material outside record, which were sufficient to
initiate valid reassessment proceeding, she relied mainly on the decision
in the case of Paramount Communication Private Limited, (2017) 392
ITR 444 (Delhi)by the Hon’ble Delhi High Court, the SLP filed against
which has been dismissed by the Hon’ble Supreme Court as reported in
2017-TIOL-253-SC-IT. She also relied on the list of other decisions which
revolve around the ratio as to whether the material received from
Investigation Wing could be considered as tangible material for
reopening of the assessment.
8.1 With reference to the arguments of the LearnedCounsel that
approval was granted by LearnedPr.CIT in mechanical manner and
without application of the mind, the Learned DR submitted that absence
of signature on the order-sheet, does not mean that the Ld. CIT(A) has
not perused the reasons recorded by the Assessing Officer and the
information enclosed. As regarding the mention of section 147(b) of the
Act in Column No. 7 of the Performa, the Learned DR submitted that it
was a mistake in the nature of clerical mistake. Regarding ground No.3
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of the appeal of the assessee, she submitted that the issue of deletion of
additions based on reasons recorded has been challenged by the
Revenue before the Tribunal, until then, the ratio of the decisions relied
upon by the Learned Counsel of the assessee cannot be applied.
Regarding ground No.4 of the appeal of the assessee, the Learned DR
submitted that addition has been filed on the basis of lack of
creditworthiness, which is evident from the information filed by the
assessee itself. Regarding ground No. 5 of the appeal of the assessee,
she submitted that in view of the fact of accommodation entries received
which has been upheld by the learned CIT(A), the corresponding
commission has been rightly upheld by the LearnedCIT(A).
8.2 With reference to the grounds raised by the Revenue in its appeal,
the Learned DR relied on the order of the Assessing Officer and
submitted that the action of the Learned CIT(A) in deleting the addition is
not justified. She submitted that the Inspector of Income Tax Department
at Kolkata could not find those two share subscriber companies, namely,
M/s. Joyprit Hotels Private Limited and M/s Joyprit Plastic Dealer Pvt.
Ltd. at the addresses provided by the assessee. She submitted that
those entities were frequently changing their addresses even on the
website of Registrar of companies in order to avoid investigation by the
tax authorities. The fact of non-existence of those two parties and other
parties verified in the process of notice issued under section 133(6) of
the Act was duly communicated to the assessee and the assessee was
asked to produce the director(s) of those shares subscriber companies,
but the assessee failed to do so. She also submitted that at the fag end,
of the assessment proceeding, the assessee submitted affidavit of Sh
Pramod Ramdeen Sharma, who was Director in M/s Joyprit Hotel Private
Limited and M/s Joyprit Plastic Dealer Pvt. Ltd. during the period of
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investment in shares capital of the assessee. According to her, on the
one hand, the assessee is filing affidavit of Sri Pramod Ramdin Sharma
and, on the other hand, was asking his cross examination. She
submitted that the onus was on the assessee to produce Sh. Pramod
Ramdin Sharma before the Assessing Officer for verification of his
contention. She also drawn attention to a long list of the companies in
which, Sh. Sharma was Director during the period of investment in share
capital of the assessee. The Learned DR submitted that genuineness of
the transaction was not established in the case of the assessee in view
of the decision of the Hon’ble Supreme Court in the case of NRA Iron
and Steel Private Limited, (2019) 412 ITR 161 (SC). In view of the
arguments, the Ld. DR submitted that entire addition made by the
Assessing Officer, might be sustained.
9. On the other hand, in relation to ground raised by the Revenue, the
Learned Counsel of the assessee relied on the order of the Learned
CIT(A) and submitted that assessee has furnished all the documents to
discharge its onus under section 68 of the Act. Regarding notices under
section 133(6) returned back, the learned Counsel submitted that notices
were issued at the old addresses despite the new addresses provided by
the assessee. Regarding finding of non-existence of shares subscriber
companies on the basis of the Inspector’s Report, the Learned Counsel
submitted that said report was not confronted to the assessee and the
two parties under reference had shifted their addresses to Maharashtra
and, therefore, could not be located at the old addresses. He submitted
that the entire assessment proceedings have been completed within a
period of two-three months and only time period of one-day was provided
to the assessee to produce the Directors of the shares subscriber
companies and thereafter on the next day, the Assessing Officer has
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passed the impugned assessment order. He further submitted that the
Assessing Officer has relied on the statement of Sri Pramod Ramdin
Sharma recorded by the Investigation Wing and no cross-examination
was provided to the assessee despite being specifically asked many
times during assessment proceeding. He submitted that the Ld. CIT(A)
has followed binding precedent of the Tribunal in the case of Prabhatam
Investment Ltd. (supra) and Hon’ble Bombay High Court in the case of
Gagandep Infrastructure Ltd. (supra).
10. We have heard rival submission of the parties on the issue in
dispute raised in the cross appeals. As far as ground No. 1 of the appeal
of the assessee is concerned, the assessee has challenged the validity
of the reassessment proceeding on the ground that approval for issue of
the notice under section 148 of the Act was granted by the
LearnedPr.CIT in a mechanical manner and without application of mind
and, therefore, reassessment proceeding must be quashed. For
adjudicating this issue, the reasons recorded by the Assessing Officer
and relevant proforma of approval granted by the Pr. CIT are reproduced
as under:
“Reason for the belief that income has escaped assessment in the case of M/s,
Omkam Developers Pvt. Ltd. A.Y. 2009-10 (Pan:AAACQ5036B)
1. Name & Address of the M/s Omkam Developers Ltd, 702, Aruachal
Assessee Building, 19, Barakhamba, Road,
Connaught Place, New Delhi
2. Assessment Year 2009-10
3. Financial Year 2008-09
4. PAN AAACO05036B
PUC is a proposal for reopening the case u/s 147 of the Act for thefA.Y 2009-
10 in the prescribed Performa.
The information received from ADIT (Inv ), Unit-3{4), Kolkata vide his letter
dated ADIT/U-3(4)/FIU-IND/MJS/15-16/4l1 dated 22.06.2015.wherein it is mentioned
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ITA No.6862/Del./2018 &
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that; in the suspicion transaction report of 1000010583 in the name of Manohar
Jaykishan Shah was received and it was reported in the I said FIU-IND-STR No.
1000010583 that there were 311 linked entities amongst whom fund transfers were
made and in few accounts there were deposits also.
In pursuance to the said report. Bank Statements of various entities have been
obtained and on investigation, it has been noticed that Omkam Developers Pvt. Ltd
(Pan AAACO5036B] was one of the beneficiaries during the F.Y 2008-09 relevant
A.Y.2009-10 and the amount brought through I accommodation entries by the above
mentioned company is Rs. 193.00 Lakhs.
Copy of the Status Report in the case of Manohar Jay kishan Shah in
connection with FIU-IND-STR No.1000010583 is reproduced below:-
A. Background:
• One Suspicious Transaction Report was received in the month November,
2009 from FIU-IND. In the said report, 31 related accounts were reported out of
which 12 accountswere found to be associated, with business of Metal Trading
Wherein Mr. ManoharJaykishan Shah is a Proprietor/Signatory. There are other 19
outstation Branch Accountswhich are linked/connected to main 12 accounts and
having non-related business/not in
the same line of business accounts. During the financial year 2008-09, high, value
cheques totaling around Rs. 2030 crore are deposit at outstation branches in these
accounts. Subsequent to which on realisation of high value credit amount, debit
internal transfertransaction of large value and in round figures has been, transacted
within connected group/linked accounts. The cumulative turnover In 31 accounts
discussed was reported tobe 673 crores.
B. VERIFICATION OF FACTS AND INVESTIGATIONS DONE:
To verify in the STR, the Bank Accounts of all 31 accounts mentioned in the
STR were requisitioned from the Bank and scrutinized. The 31 Bank accounts- were
opened atdifferent, branches of the Development Credit Bank. The following, facts
emerged from the scrutiny of Bank Accounts:
I. There were 7 Bank Accounts belonging to 6 entities in which cash of Rs. 15.26
crore was deposited in the F.Y.-2008-09: The cash deposited were swiftly
Transferred to other entities through Cheques/RTGS. These-6 entities are
proprietorships. The detail is given as per Annexure-C. The funds from other entities
through Cheques/RTGS were also received in these accounts. The details of
another 21proprietorships given are STR is as per Annexure-C1.
II. The find from the entities mentioned in Annexure-C and C1 were transferred to
a number of entities which are mostly entities already identified as the companies
controlled by the entry operators, few of them have been listed in Annexure-1.
III. The fund was rotated among the entities detailed in Annexure-C, C1 and
Annexure-1
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ITA No.6862/Del./2018 &
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IV. There were 6 Bank Accounts Belonging to 6 Companies in which funds were
received from mostly entities discussed in Annexure-C, C1 and Annexure-1 and the
same was swiftly transferred to the other entities (Mostly Companies). The details of
6 such companies are given in Annexure -5
V. The fund was transferred to the entities which are the real beneficiary of the funds
from the companies mentioned in Annexure-S. The details of such, companies are
given in Annexure –B.
Modus operandi of providing accommodaton entry
The summons u/s 131 were issued to the individuals and entities mentioned in
the STR. The field verification from the inspector was also done. In most of the cases
either the summons could not he served or there was no compliance, The facts of
immediate source of the beneficiaries being shell companies have already been
established and recorded u/s 131 of the Income Tax Act-1961 during the
investigation in other cases. The fact as also corroborated by the non-compliance to
the summons as well as non-existence of real business of most of the entities
mentioned in Annexure-C, C1 and l and S.
Flow Chart of Cash Flow
Cash deposit in proprietorship concerns
Layering of funds through dummy Proprietorships and Shell companies
Fund transfer to Shell/Paper Company
Fund to the Beneficiaries
Conclusion
(i) In retrospect it can be rightly conceded that, the beneficiary companies have
introduced n cash in primary accounts discussed in Annexure-C and s symbolized by
various companies (created for the purpose re-1, Annexure-S) operated by entry
operators by entry operators, the unaccounted funds have been entered In the
regular books of accounts of the beneficiary companies.
(ii) in view of the above, the total amount which has been transferred to the
beneficiaries or the recipient companies from the bank accounts of paper companies
during F.Y. 2008-09 is details in Annexure-8.
The A.O. of the all beneficiary (Annexure-B) companies is being appraised of ]
regarding accommodation entry accepted by the companies in F.Y. 2008-09. Further,
A.O. of V concerns listed in Annexure-C, C-l and S is also being intimated regarding,
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ITA No.6862/Del./2018 &
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cash deposit and credit made in different bank controlled by them for taking
necessary action.
It appears that assessee M/s Omkam Developers Ltd. has received 'I bogus
share capital/premium to the tune of Rs.1.93 Crores. The Income Tax | Returns of
the assessee were also examined and noticed that the share premium; of assesses
was increased to Rs.81,28,52,000/- in the relevant year from Rs. 17,69,50,000/-in the
preceding year.
As discussed in earlier paras, the assessee has obtained such entries
through above mentioned modus-operandi, it is actually assessee's own money
(cash) which was rotated through such channel. This cash was out ofhis
unaccounted income.
I have reasons to believe that an amount of Rs.1.93 crores has escaped from
the Assessment for the A.Y. 2009-10 which was chargeable to tax. I am also satisfied
that on account of failure on the part of the assessee to I disclose truly and fully all
the material facts necessary for assessment for the j above assessment year, the
income chargeable to tax to the tune of Rs.193.00 Lakh as escaped assessment with
the meaning of Section 147 of the IT Act 1961
I have perused the information received from the Investigation Wing,Kolkata
The Investigation Wing of the Department has sent comprehensive detail comprising
inter alia the beneficiary’s name, value of entry taken etc.
In the aforesaid case as per record from ITD, return of income was filed on
declaring Rs.2,389/- income, it is noticed that the assessee company M/s Omkam
Developers Ltd, received accommodation entries to the tune of Rs.1.93,crores during
the F.Y. 2008-09 relevant to assessment year 2009-10 from the entry operators as
mentioned in the chart above and same was not offered for taxation.
Having perused and considered the information, I have reason to believe that
income of the assessment company to the extent of Rs.193 Lakh has escaped
assessment for the A.Y. 2009-10. Therefore, proceedings u/s 147 i.e. clause (b) of
Explanation 2 of the provisions of section 147 of the I.T. Act, 1961 is proposed to be
initiated for the A.Y. 2009-10.
As per ITD record, Return of Income has filed on 30.03.2010 at an income
of'Rs.2,389/- for the A.Y. 2009-10.
Since four years has been expired from the end of the relevant assessment
year in this case for the said assessment year, it is therefore I/requested that the
reasons recorded above for the purpose of reopening of assessment is put up for
kind satisfaction of Pr.CIT, Delhi-7, New Delhi in terms of proviso, to Section 151 of
the Income Tax and approval for issue of notice u/s 147 may kindly be accorded.”
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ITA No.6862/Del./2018 &
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10.1 On perusal of the proforma for the approval granted by the PCIT, it
is evident that in the relevant column No.13 for satisfaction of the Pr.CIT,
he has only mentioned “yes”. No other information is available on record
or provided by the ld. DR, which could establish application of mind by
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ITA No.6862/Del./2018 &
7507/Del./2018
the CIT, while granting sanction/approval for issue of notice u/s 148 of
the Act. No other evidence was produced as to substantiate that matter
was ever discussed between the Assessing Officer or Addl. CIT and the
Learned Pr.CIT for arriving at satisfaction of Learned Pr.CIT on the
reasons recorded by the Assessing Officer. Even no evidences whether
Ld PCIT examined the material relied upon by the Ld AO for reopening,
was produced before us. In similar circumstances, Hon’ble Delhi High
Court in the case of NC Cable Ltd (supra) held that section 151 of the
Act clearly stipulates that Learned CIT, who is the competent authority to
authorize the reassessment notice, has to apply his mind and form an
opinion. The Hon’ble High Court further observed that the mere
appending of the expression ‘approved’ says nothing. It is not as if the
CIT has to record elaborate reasons for agreeing with the noting put up
but at the same time, satisfaction has to be recorded of the given case,
which can be reflected in the briefest possible manner. The Hon’ble High
Court further observed that in that case the exercise appeared to have
been the ritualistic and formal rather than meaningful, which is the
rationale for safeguard of an approval by a high-ranking officer. Thus, in
the instant case, mere mentioning of “yes’ for approval, without any other
evidence of application of the mind, amounts to mechanical approval by
the LearnedPr.CIT.
10.2 Further in Column No. 7 of the proforma, the section for invoking
reassessment has been recorded as 147(b) of the Act. During the
relevant period, section 147(b) was no longer in existence. This shows
that the Ld. AO has filed the Proforma in mechanically manner and Ld.
CIT has also approved the same mechanically. In the case of Madhu
Apartment Private Limited vs. ITO, ITA.Nos.3869 & 3870/Del./2018
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ITA No.6862/Del./2018 &
7507/Del./2018
wherein the Tribunal, Delhi Bench, vide order dated 01/02/2021 held as
under:
“7. After considering the rival submissions, we are of the view that the issue is
covered by the Order of ITAT, Delhi G-Bench, Delhi in the case of VRC
Township Pvt. Ltd., Delhi (supra) in which reopening of the assessment in
identical circumstances was held to be bad in law and sanction accorded by the
Sanctioning Authority was also found invalid, therefore, reopening of the
assessment was quashed. In the present case, the Learned Counsel for the
Assessee has pointed-out that assessee has raised this issue before the
Ld. CIT(A), but, he has rejected the submissions of the assessee holding
that Section 147(b) as mentioned in the reason and Format is a
typographical human error which is curable under section 292B of the I.T.
Act, 1961. This issue is also considered in the Order of VRC Township Pvt.
Ltd., (supra) following the decision of Hon’ble Bombay High Court in the
case of Kalpana Shantilal Haria vs. ACIT [2017] 100 CCH 165 (Bom.).
Following the same reasons for decision, we set aside the Orders of the
authorities below and quash the reopening of the assessment in both the
assessment years under appeals. All additions stand deleted. Accordingly,
appeals of the Assessee are allowed.”
10.3 In the instant case before us, also the Learned DR has argued that
the mistake of noting section under section 147(b) of the Act for
reassessment proceeding is a clerical mistake, however, the Tribunal in
the above decision has rejected the said contention and quashed
reassessment proceeding on the ground of non-application of mind while
granting approval for reopening of the assessment under section 151 of
the Act.
10.4 Respectfully, following the decision of the Hon’ble Delhi High Court
in the case of NC Cable Ltd (supra) and decision of the Tribunal in the
case of Madhu Apartment Pvt. Ltd (supra), we quash the
reassessment proceeding in the case of the assessee.
10.5 Since we have quashed the reassessment proceeding while
adjudicating ground No.1 of the appeal of the assessee, no additions
made by the Assessing Officer could be sustained. As far as other
grounds of appeal of the assessee challenging validity of reassessment
proceeding are concerned, same are rendered merely academic in
nature and, therefore, we are not adjudicating upon those grounds. As
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ITA No.6862/Del./2018 &
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far as grounds of the parties challenging merit of the addition are
concerned, same are rendered infructuous in view of the reassessment
proceeding already quashed by us.
11. In the result, the appeal of the assessee is allowed, whereas
appeal of the Revenue is dismissed.
Order pronounced in the open court on 11th May, 2021
Sd/- Sd/-
(KULDIP SINGH) (O.P. KANT)
JUDICIALMEMBER ACCOUNTANTMEMBER
Dated: 11th May, 2021. Asst. Registrar, ITAT, New Delhi
RK/-(DTDS)
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
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