Delhi High Court
Pratibha Finvest P. Ltd. vs Ito Ward 14(3), New Delhi on 5 December, 2012
Author: S.Ravindra Bhat
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 7538/2012
ITA 307/2012
Date of decision: 05.12.2012
PRATIBHA FINVEST P.LTD ..... Petitioner
Through : Sh. K.R. Manjani, Advocate.
versus
ITO WARD 14 (3) , NEW DELHI ..... Respondent
Through : Sh. Karan Khanna, Sr. Standing
Counsel.
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT)
%
1. The assessee is aggrieved by an order of the Income Tax Appellate
Tribunal (ITAT) dated 10.01.2011; it seeks to appeal under Section 260A of
the Income Tax Act. The question of law sought to be urged in the said
appeal is:
"Whether the Tribunal fell into error in upholding the
addition of Rs.1,10,896/- as income earned by way of
commission for providing accommodation entries?"
2. In the writ petition, the order of the ITAT, refusing to entertain the
appellant's application under Section 254(2) and rectify its order - made in
W.P.(C) 7538/12 & ITA 307/12 Page 1
the appeal, has been impugned.
3. The brief facts of the case are that pursuant to search operations
conducted on certain third parties, characterized as "accommodation entry
providers"/"bogus share applicants", a report was furnished by the
Investigation Wing of the Income Tax Department to various AOs. Relying
upon one of these reports, the AO, in the present appellant's case, issued
notice under Section 147, seeking to reopen the assessment proceedings.
The relevant part of the notice, recording the AO's "reasons to believe" why
reassessment was necessary - states as follows:
"The investigation wing on the basis of enquiries
conducted/information collected has sent the names and
addresses and bank accounts of the beneficiaries and also the
value of entry taken by such beneficiaries from different entry
operators. The names of entry giver and bank accounts of the
beneficiaries and also the value of entry taken by such
beneficiaries from different entry operators. The names of entry
giver and bank accounts through which the entry was given has
also been informed by the Investigation Wing. One such
beneficiary is M/s. Pratibha Finvest Pt. Ltd.
As per report of Inv. Wing, M/s. Pratibha Finvest Pvt.
Ltd. had received accommodation entry amount of
Rs.5,08,687/- in the F.Y. 2000-01 relevant to A.Y. 2001-02
under the garb of share application money/share capital/bogus
gifts.
In view of the above discussion, I have reason to believe
that income at least the extent of Rs.5,08,687/- for A.Y. 2001-02
had escaped assessment within the earning of the provisions of
Section 147(b) of the IT Act, 1961. To bring to tax the income
which has escaped assessment, I proposed to issue notice under
Section 148 of the IT Act, 1961."
4. The reassessment proceedings culminated in the AO's order dated
W.P.(C) 7538/12 & ITA 307/12 Page 2
04.12.2008, whereby the sum of Rs.1,10,896/-, being 2% of the total
unexplained balance of Rs.54,44,816 in the bank account was treated as
income in the assessee's hands by way of commission on hawala entries and
added back to its income.
5. The assessee carried the matter in appeal to the CIT(A); the latter
called for a remand report. The assessee had contended that the AO had
passed its decision entirely on the Investigation Wing's report and had not
independently applied his mind. Para 4.1 of the Commissioner(A)'s order
deals with this aspect in length and also discusses the remand report. The
relevant parts of the said order are as follows:
"4.1 Before me, the Ld. AR submitted that the AO has
not applied his mind judiciously in coming to the conclusion
that the appellant was an entry operator. The Ld. AR submitted
that the AO has based his decisions on the basis of report of the
Investigation Wing and has not applied his own mind. For the
sake of convenience, the relevant portion of the AR's
submission is reproduced below:
"..............so far as transaction of Rs.5,08,687/- as mentioned
in the reasons recorded is concerned, in this connection as
already been submitted on the date of last hearing that
appellant company is a NBFC company and is engaged in the
business of financing activity and purchase and sale of shares.
During the year under consideration assessee company has
sold the 5000 equity shares of Patel Care India Pvt. Ltd to a
stock broker namely M/s. H.B. RELAN & Co. Copy of contract
note and bill issued by the broker, filed with AO during the
course of hearing is enclosed herewith for your honour ready
reference. No defect is pointed out. On the sale of these shares
appellant company has earned the profit of Rs.8,687/-. Shares
were acquired by the assessee company in the year f.y. 1997-
98. Acquisition of shares is also not disputed by AO and the
transaction has been accepted by AO.
W.P.(C) 7538/12 & ITA 307/12 Page 3
Regarding the addition made by AO as an alleged entry
operator @ 2% commission earned on the basis of deposits of
Rs.55,44,816/- in bank account is concerned in this connection
firstly it is clarified that deposit in the back account is
Rs.51,44,650/-. As a matter of fact AO has taken the wrong
amount. This is further stated before your honour that credit
transaction in the bank account is on account of interest
received from various parties and or refund of old deposits and
all the transaction has been carried out in the normal course of
business. Copy of bank account along with narration of entries
and confirmation filed the appellant company during the course
of assessment proceedings as desired by AO are enclosed
herewith for your honour's ready reference. No defect has been
pointed out by AO. Addition has been made arbitrarily without
bringing any adverse material.
In view of above mentioned facts and documentary
evidences placed on record your honour will appreciate that:
1. AO has not brought any material on record to prove and
establish that deposits of amount in the bank account of H.B.
Relan & Co. belongs to the assessee company or cash/clearing
is deposited by the person hired by the appellant company or its
related person.
2. No evidence/statement is brought on record by the AO to
prove that cash has been paid by the appellant company in lieu
of cheque received.
3. Nature of business and old shares held by Assessee
Company is not disputed by AO.
4. Credit in the bank account is also in respect of interest
income received or received back of its own money advanced to
the parties in the normal course of its business.
5. No material/evidence/documents/statement has been
W.P.(C) 7538/12 & ITA 307/12 Page 4
confronted to the assessee company.
6. AO has not verified and examine the correctness of the
information of investigation unit.
In view of the above your honour is requested to allow the
appeal filed by the appellant and oblige."
4.2 The submissions of the AR were forwarded to the AO for
his comments vide this office letter dated 09.02.2010. The AO in
his remand report dated 22.02.2010 has rebutted the claim of
the appellant. It would be convenient to reproduce the relevant
portion of the AO's remand report:
"Information in this case was received from Investigation
Wing, Unit-VI, New Delhi, to the effect that the assessee
company was engaged in providing accommodation entries for
monetary benefits. As per the enquiries conducted by the
Investigation Wing the assessee was one of such entry operator.
Accordingly, notice u/s 148 was issued for the year under
consideration, after obtaining prior approval of the Addl. CIT,
Range-14, New Delhi. Form the bank statement it was noticed
that the assessee has a credit balance of Rs.55,44,816/- in his
bank account. Further it was noticed that the assessee has
deposited cash on various dates in his bank account during the
period under consideration. The assessee could not substantiate
its claim with supporting documentary evidence during the
assessment proceedings. As the assessee was an entry operator,
as per information received, an amount of 2% of the credit in
the bank account amount to Rs.55,44,816/- was treated as
income towards providing accommodation entries during the
period under consideration.
The assessee has not asked for copy of the reasons
recorded during the assessment proceeding and it was only on
20.10.2009 that the assessee has asked for reasons for
reopening which were provided to him. There is no calculation
mistake as pointed out by the AR of the assessee with regard to
W.P.(C) 7538/12 & ITA 307/12 Page 5
the credits in the bank account. Since the assessee was
completed on the basis of information received from
Investigation Wing, the Assessing Officer rightly made the
addition
.
In view of the facts and circumstances, as discussed at
length above, the contentions raised by the assessee during the
appellate proceedings are not correct and the appeal of the
assessee may be decided on merits."
A copy of the remand report was made available to the appellant for his
comments on 11.03.2010. However, the appellant has not given any
comments on the remand report."
6. On the basis of the materials, the CIT(A) held that the assessee
claimed to engage in the business of sale and purchase of shares and
financing, and showed a loss of Rs. 2.01 lakhs in share trading. The CIT(A)
noticed that no documentary evidence was forthcoming. The AO says that
other income claimed as consisting of commission received and commission
paid was unsupported by evidence. The CIT(A) consequently rejected the
appellant's contentions. The appellant carried the matter further in appeal to
the ITAT which upheld the reopening of assessment. As far as the merits are
concerned, the ITAT, after narrating the sequence and discussing the
materials as well as the contention, observed as follows:
"21. With regard to the addition made, it is seen, that before
the CIT(A) the assessee company had submitted that it was an
NBFC engaged in the business of financing activity and
purchase and sale of shares; that during the year, it had sold
5000 equity shares of Patel Care India Pvt. Ltd. to a stock
broker, namely, M/s. H.B. Relan & Co., that on the sale, the
assessee had earned a profit of Rs.8687; that the shares had
been acquired by the assessee company in financial year 1997-
W.P.(C) 7538/12 & ITA 307/12 Page 6
98; that such acquisition of shares had also not been disputed
by the AO and the transaction had been accepted; that apropos
the deposit of Rs.55,44,816 in the assessee's company account,
the AO had taken a wrong amount; that further, the credit in
the bank account was on account of interest received from
various parties and/or refund of old deposits; that all the
transactions had been carried out in the normal course of the
business of the assessee; that a copy of the bank account along
with narration of entries and confirmation had been filed before
the AO; that no defect was pointed out by the AO therein and
the addition had been made arbitrarily without bringing any
adverse material; that the AO had not brought any material on
record to prove that the deposits of the amounts in the bank
account of of H.B. Relan belonged to the assessee company or
that the cash/clearing had been deposited by a person hired by
the assessee company or its related person; that nothing had
also been brought on record to prove that cash had been paid
by the assessee company in lieu of cheques received; that
neither the nature of business of the assessee company, nor the
old shares held by it had been disputed by the AO; that the
credit in the bank account was in respect of interest income
received or received back by the assessee's own money
advanced to the parties in the normal course of its business;
that no material or evidence or documents or statement had
been confronted by the AO to the assessee company; and that
the AO had not verified the correctness of the information of the
Inv. Wing.
22. The matter was remanded by the CIT(A) to the file of the
AO for his comments.
23. In the remand report dated 22.2.10, the AO had rebutted
the assessee's claim stating, inter alia, that the assessee had
deposited cash in its bank account on various dates during the
period under consideration; and that the assessee had
remained unable to substantiate its claim with supporting
documentary evidence, in the assessment proceedings.
W.P.(C) 7538/12 & ITA 307/12 Page 7
24. On being confronted with the AO's Remand Report, the
assessee company did not file any rejoinder before the CIT(A).
25. The CIT(A) took into account of the above. This included
the evidence now pointed out as having been filed by the
assessee. It was on due consideration of the matter that the
CIT(A) found that the assessee had remained unable to explain
the credit balance of Rs.5544816 in its bank accounts. Though
it had been held out by the assessee that the credit in the bank
account was from interest received from various parties and/or
refund of old deposits concerning transactions carried out in
the normal course of the assessee's business, from the returned
income filed by the assessee, it was seen that the assessee had
declared a total income of Rs.13047 only, though the assessee
claimed to have engaged in the business of purchase and sale of
shares and in financing activity. The categorical factual
observation of the CIT(A) that the assessee had not been able to
establish that the transactions routed through its bank
accounts, including the cash deposits, were genuine business
transactions, remained unhinged. Further, the assessee
company was shown to have declared a loss of Rs.201313 in
share trading. However the genuineness of such share trading
transactions remained unestablished, since no documentary
evidence was filed to prove such genuineness. This aspect of the
matter has also remained uncontroverted. Furthermore, though
the commission received, amounting to Rs.461900 and
commission paid, amounting to Rs.214260/- had been shown,
there was no evidence filed of either services rendered for
receipt of commission or of services obtained for payment of
commission. Moreover, likewise, though an amount of
Rs.1,80,000/- had been claimed in the P&L A/c of the assessee
company as salary paid, again, no evidence to support such
commission, was furnished.
26. It was from the above that the CIT(A) concluded and, in
our considered consideration, correctly so, that the assessee
company had not been carrying on any actual business activity.
The addition of Rs.110896 was, therefore, rightly confirmed by
W.P.(C) 7538/12 & ITA 307/12 Page 8
the CIT(A), and we hereby uphold such action of the CIT(A).
Accordingly ground no. 5 is also rejected."
7. It is contended on behalf of the appellant that the Tribunal and the
lower authorities completely misdirected themselves and overlooked the
materials, which included the supporting documentary evidence in respect of
each entry and transactions reflected in the books. It was submitted that the
appellant had, during the reassessment proceedings, entirely submitted its
records and disclosed the same to the AO. It is, therefore, urged that the
findings of the ITAT as well as the CIT(A) are perverse as they have not
even adverted to the materials produced.
8. The assessee had lastly contended that the additions made by the AO
and sustained by the Commissioner(A) and later by the ITAT cannot be
upheld because they do not form part of the "reasons to believe", which in
the first instance, impelled the Department to reopen the proceedings. In this
regard, the assessee relies upon the decision of this Court in Ranbaxy
Laboratories Ltd. v. CIT 336 ITR 136. In that case, the Court had held that
once the assessing officer assumes jurisdiction to reopen proceedings under
Section 148, he cannot, in the absence of any material with regard to the
rationale for the reopening, independently make additions in respect of other
income which escapes assessment. Learned counsel also relied upon the
judgment of the Rajasthan High Court in Dr. Devender Gupta v. CIT 2011
(336) ITR 59 (Raj). This Court is of the opinion that the amplitude of the
powers under Section 147 and 148, despite the amendment brought about by
Explanation 3 to Section 147, is not as restricted as is sought to be
contended in this case. The said Explanation undoubtedly has been added
recently; to this Court's mind it clarifies what existed previously. Speaking
W.P.(C) 7538/12 & ITA 307/12 Page 9
on this, the Supreme Court in V. Jagan Mohan Rao and Others v.
Commissioner of Income Tax and Excess Profits Tax, A.P. 1970 (75) ITR
373, stated that:
".......under Section 34 for the assessment year 1944-45 were
legally valid. It was stated on behalf of the appellant that in any
case the Income Tax officer could have legitimately assessed
one-third share of the income which was due to the assessee
according to the judgment of the Madras High Court and there
was escape only to the extent of two-thirds share of the income.
This argument is not of much avail to the appellant because
once proceedings under section 34 are taken to be validly
initiated with regard to two-thirds share of the income, the
jurisdiction of the Income Tax Officer cannot be confined only
to that portion of the income. Section 34 in terms states that
once the Income Tax officer decides to reopen the assessment
he could do so within the period prescribed by serving on the
person liable to pay tax a notice containing all or any of the
requirements which may be included in a notice under Section
22(2) and may proceed to assess or reassess such income,
profits or gains. It is, therefore, manifest that once assessment
is reopened by issuing a notice under sub-section(2) of section
22 the previous under-assessment is set aside and the whole
assessment proceedings start afresh. When once valid
proceedings are started under Section 34(1)(b) the Income Tax
Officer had not only the jurisdiction but it was his duty to levy
tax on the entire income that had escaped assessment during
that year."
9. In the opinion of this Court, the law as it existed always was that if a
valid notice under Section 147 was issued by the AO, the scope of scrutiny
and final assessment made in the reopening proceedings was not conditioned
upon the material which impelled him to issue notice. To hold such a view
would be to impinge on the concededly wide power conferred upon the
Revenue in Section 147/148 and undermine its objective. Consequently, the
W.P.(C) 7538/12 & ITA 307/12 Page 10
appellant's contentions in this regard are rejected.
10. This Court has carefully considered the submissions. As regards the
challenge to the reopening of proceedings is concerned, the Court is satisfied
that the notice under Section 147 reflected due application of mind to
objective material furnished to the AO, i.e. by way of Investigation Report
which could have given rise to a bonafide belief, legitimately falling within
Section 147. As regards other issue, i.e. addition of Rs.1,10,896/- is
concerned, this Court notices that this question was again gone into
elaborately by the CIT(A), who, however, sought for remand report. A
careful reading of the paras 4.1 to 4.3 of the appellate Commissioner's order
would reveal that the materials produced before the AO and also discussed
by the AO in the remand report were taken into consideration. Furthermore,
it is not as if the entire amount of Rs.55,44,816/- which was shown to be the
balance in the bank account of the appellant is sought to be added back. In
that regard, the assessee's explanations were somewhat accepted. The
Revenue has proceeded on the footing that the appellant provided some
services and charged him only to the commission reasonably earned by it,
i.e. Rs.1,10,896/-. Being a pure question of fact, this Court cannot,
exercising jurisdiction to consider substantial questions of law, convert it
into a third Court of fact and examine the concurrent findings.
11. As a result of the above discussion, the Court is satisfied that the
ITAT's order does not call for any interference.
12. For the above reasons, the Court does not find any substantial
question of law which requires to be answered in the appeal. Similarly, the
petition seeking intervention of Court under Article 226 in respect of the
ITAT's order rejecting the application for rectification is devoid of merits.
W.P.(C) 7538/12 & ITA 307/12 Page 11
Both are accordingly dismissed.
S. RAVINDRA BHAT
(JUDGE)
R.V.EASWAR
(JUDGE)
DECEMBER 05, 2012
'ajk'
W.P.(C) 7538/12 & ITA 307/12 Page 12
