Delhi High Court
Vedanta Limited vs Assistant Commissioner Of Income ... on 20 December, 2019
$~36.
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ Date of Decision: 20.12.2019
% W.P.(C) 13036/2019
VEDANTA LIMITED ..... Petitioner
Through: Mr. Sachit Jolly, Mr. Rohit Garg and
Mr. Vasudevan G, Advocates.
versus
ASSISTANT COMMISSIONER OF
INCOME TAX, CIRCLE 26(1) & ANR. ..... Respondents
Through: Ms. Vibhooti Malhotra, Advocate.
CORAM:
HON'BLE MR. JUSTICE VIPIN SANGHI
HON'BLE MR. JUSTICE SANJEEV NARULA
VIPIN SANGHI, J. (ORAL)
C.M. No. 53160/2019
1. Exemption allowed, subject to all just exceptions.
2. The application stands disposed of.
W.P.(C) 13036/2019 and C.M. No. 53159/2019
3. The petitioner has preferred the present writ petition to assail the
notice dated 31.03.2019 issued to the petitioner under Section 148 of the
Income Tax Act in respect of the Assessment Year 2012-13, and the
proceedings arising therefrom. The petitioner also seeks a restraint against
the respondents from proceeding with the framing of assessment under
Section 147/ 148 of the Act.
4. The notice dated 31.03.2019 under Section 148 of the Act is
addressed to the petitioner M/s Vedanta Limited as the successor of M/s
Sterlite Industries Private Limited (SIPL). The petitioner was provided with
the reasons for re-opening the assessment. The crux of the reasons is that
SIPL had received an amount of Rs. 90.32 crores in the FY 2011-12 from
Moral Alloys Private Limited (hereinafter referred to as Moral), and
investigation had shown that Moral was heavily engaged in the activity of
providing accommodation entries, thus giving rise to the belief that SIPL's
income chargeable to tax had escaped assessment. The reasons, inter alia,
state that the Assessing Officer had received information on 28.03.2019
from the Office of ADIT (Inv.) (HQ-2) in respect of the, prima facie,
beneficiaries in the case of Moral. The notice extracts the summary of the
said investigation report, wherein it is stated that Moral in an effective
period of four years (FY 2011-12 to 2014-15) had shown turnover of Rs.856
Crores in its bank accounts, details whereof were disclosed in the report.
After its incorporation in September 2010, Moral had declared its activity as
trading in metals at its address at Darya Ganj, New Delhi. Moral had
opened an account on 23.08.2011 with Axis Bank, Sadar Bazar Branch,
New Delhi. Cash deposits and cash withdrawals in the said account were to
the tune of Rs.93 Lakhs and Rs.21 Lakhs respectively.
5. The said report disclosed that the outflows from the said account of
Moral were exact equivalent to the inflows in the said account, and on the
same day. The outflows observed from the said account were to similar
entities only. A large number of debits to companies like SIPL - which
merged in the petitioner, were also noticed in the account. After every
withdrawal, the account was left with minimum balance. The trend of
transactions in the account of Moral raised suspicion. The account showed
exceptionally high turnover in a short span of time by recording two and
four transactions with the same group of industries in a similar trend. The
ITR profile of Moral, tabulated in the information received by the Assessing
Officer, was as follows:
"AY 2012-13 2013-14 2014-15 2015-16 2016-17
Gross Sales/ 6,08,95,72,648 4,65,51,78,891 11,56,68,567 4,92,65,500 3,40,32,938
Turnover (in Rs.)
Gross Total 3,97,538 12,27,252 2,24,320 2,54,338 1,65,413
Income (in Rs.)
Total Tax Payable 1,29,490 3,79,220 69,315 78,591 51,112"
(in Rs.)
6. The statements of two bank accounts of Moral were investigated. In
respect of Account No.911020042960662 opened on 23.08.2011, for FY
2011-12, the total inflow and outflow were found to be Rs.2,89,11,30,738/-
and Rs.2,87,58,32,620/- respectively. Almost all funds credited in the bank
accounts were transferred further to other entities and accounts on the same
day, leaving minimal balance.
7. Another bank account of Moral with Punjab National Bank was also
examined by requisition of the bank account statement. The same disclosed
total inflow of Rs.25.10 Crores and outflow of Rs.24.98 Crores. This
account also showed similar trend of activity, namely, the amounts were
transferred out to other entities on the same day on which the account was
credited with monies. During the Financial Year 2011-12, SIPL received
Rs.90,32,00,000/-, which the petitioner claims to be the sale proceeds. The
investigation report also notices the ITR profile of SIPL for the Assessment
Year 2012-13.
8. Significantly, the investigation report states that summons were issued
to Moral on 13.03.2019 to furnish a detailed note of its business activity
carried out during the period 2011-12 to 2015-16 and to explain the very low
income offered by it for taxation despite very large turnover/ gross sales
during the said period, along with supporting documents and other relevant
details. The investigation report states that the Inspector, OCM Cell-2 was
deputed to serve the summons on the registered address of Moral as per its
latest ITR; "however, though the address was there, no entity in the name
of Moral Alloys Pvt. Ltd. ever existed at the said address. Subsequently,
summonses were issued to Sh. Deepak Bansal and Nitin Kumar, directors
of the company at their residential address (as per their latest ITRs) on
13.03.2019 and Inspector, OCM Cell-2 was deputed to serve the said
summonses, but they also could not be traced out at the said addresses and
no one in the vicinity had ever heard about them. Further, MCA data of
Moral Alloys Private Limited and KYC documents submitted to the bank
were analysed but address provided in those were the same addresses as
provided in its latest ITR". (emphasis supplied)
9. The extract of the investigation report contained in the notice further
states that inquiries were made from those entities, whose gross taxable
income for the Financial Year 2011-12 was miniscule despite having
substantial turnover and dealings with Moral. Summonses were issued to
such entities, namely M/s Brilliant Metals Pvt. Ltd., M/s Progressive Alloys
(India) Pvt. Ltd, M/s Unnati Alloys Pvt. Ltd., M/s JBN Impex Private
Limited, M/s Forward Minerals & Metals Private Limited, M/s Bafna
Metals Put Ltd, M/s Misawa Impex Pvt. Ltd, M/s Durga Enterprises and M/s
QNS Metals. However, in most cases, summonses could not be served
because these entities were not found to exist at their respective addresses.
M/s Brilliant Metals Pvt. Ltd. - though found at the given address, had only
one person/ Caretaker. On inquiry, he states that no business activity had
ever been undertaken on that premises. Investigation further found that the
two Directors of Moral were also the Directors of M/s Forward Minerals &
Metals Private Limited and M/s Unnati Alloys Pvt. Ltd.
10. The Investigation Report, relied upon by the Assessing Officer,
further reveals that Moral has share holding in M/s Brilliant Metals Pvt.
Ltd., M/s Progressive Alloys (India) Pvt. Ltd, M/s Unnati Alloys Pvt. Ltd.
and M/s JBN Impex Private Limited. Moral also had undertaken
transactions with the said four companies during the financial year 2011-12.
The income shown by majority of these entities in their ITR for assessment
years 2012-13 were miniscule, compared to the volume of their banking
transactions with Moral Alloys Private Limited and also the turnover
reported by them in their ITRs.. Investigation also showed that Moral had
transferred substantial amounts, inter alia, to SIPL, which merged with the
petitioner, to the tune of Rs. 90.32 crores during the financial year 2011-12.
The two entities with whom Moral had the highest money transactions were
M/s Unnati Alloys Pvt. Ltd. and M/s Misawa Impex Pvt. Ltd. The amounts
credited into the account of Moral, as depicted from the account of Moral, in
respect of both these entities were almost equal. Moreover, the amounts
credited into the account of Moral from these two entities were further
transferred to other entities on the same day and the accounts of Moral were
left with minimal balance. The Investigation Report contained the analysis
in respect of the ITR of Moral for the Assessment Year 2012-13. The same
has been extracted by the Assessing Officer in his reasons and it reads as
follows:
"7. ..... ..... .....
> Total sales/gross receipt of business and purchases shown by
Moral Alloy Pvt. Ltd for FY 2011-12 were Rs 608.95 Cr and
608.21 Cr respectively.
> Balance sheet of Moral Alloys Pvt Ltd for AY 2012-13 does
not support any significant loan advanced by Moral Alloy (loan
advanced worth Rs 2.03 Cr only) or received by it (Rs zero) as
on the year end date. Therefore, transactions done by Moral
Alloys Pvt Ltd with above mentioned entities vide para 5
appear to be mainly in the nature of sale and purchase.
> Moral Alloys Pvt Ltd claimed very less operational expenses
for FY 2011-12 against huge revenue from sales of Rs 608.95
Cr. It claimed Employee benefit expenses- Rs 5.39 lac,
depreciation expense- Rs 1.37 lac, Rent- Rs 1.63 lac,
Commission paid-Rs 11.87 lac, and cost freight- Rs 20.73 lac
only. Its total paid .up capital is only Rs 1.0 Lac and fixed
assets are only Rs 2.22 Lac for A Y 2012- 13. These facts
further corroborate that it has/had no genuine business.
> It is also evident from ITRs of both the directors of Moral
Aloys Pvt Ltd for A Y 2012-13 that no salary income was
shown by them.
8. In view of the above, ITR profile done vide para 6 & 12 and
comparative chart tabulated vide para 11 & 12 it becomes
clear that Moral Aloys Pvt Ltd and other entities such as
Brilliant Metals Pvt. Ltd, Progressive Alloys (India) Pvt. Ltd,
Unnati Alloys Pvt. Ltd., JBN Impex Private Limited, Forward
Minerals & Metals Private Limited, SWift: VanijaPvt Ltd,
Bafna Metals Pvt Ltd, Misawa Impex Pvt. Ltd, Durga
Enterprises and ONS Metals, etc. are involved in similar
nature of activity of giving and taking non-genuine
accommodation entries. Other entities identified are prim a
facie beneficiaries are ultimate beneficiaries of these sham
transactions/ non -genuine entries."
(emphasis supplied)
11. The Assessing Officer proceeded to analyse the information collected/
received. The said analysis is elaborate. Since one of the primary
submissions advanced by learned Senior counsel for the petitioner is that the
Assessing Officer has not independently applied his mind, and he has
proceeded on the borrowed conclusions contained in the Investigation
Report, we deem it appropriate to set out, in extenso, the analysis undertaken
by the Assessing Officer; the enquiries made by the Assessing Officer; the
findings of the Assessing Officer, and; the reasons for formulation of his
belief. The same reads as follows:
"3. Analysis of information collected/received:
3.1 I have perused and analyzed the information available
with this office. The following facts emerged from the inputs
which are mentioned above:-
The assessee M/s Sterlite Industries Pvt. Ltd. (now merged into
Vedanta Ltd.) is one of the beneficiary in case of Moral Alloys
Pvt. Ltd. and has received accommodation entries from Moral
Alloys Pvt. Ltd. The assessee has received accommodation
entries to the tune of Rs. 90,32,00,000/- from round routing of
funds through Moral Alloys Pvt. Ltd. In the investigation report
mentioned above the modus operandi of cash deposit and cash
withdrawal has been duly noted. After each withdrawal account
was left with minimal balance.
There is exceptionally high turnover. Further summons
issued to Moral Alloys Pvt. Ltd, by the Investigation Wing has
not been complied in law and spirit as discussed above.
Several round routing of funds have been established in the
investigation report, Further, field investigation have shown
that it is appearing as bogus company.
I have perused the above detailed information received from
the Investigation Wing and after analysing the above
information I am satisfied that the assessee has received
accommodation entries from Moral Alloys Pvt. Ltd. This
receipt of accommodation entries from the above Company
was not known to the AO at the time of completion of original
assessment, hence, no inquiry was conducted on this issue.
4. Enquiries made by AO as sequel to information
collected/received:
4.1 The above report was received on 29.03.2019 and it has
been perused thoroughly. It is evident that the assessee has
received accommodation entries and as a result of which
income of Rs.90,32,00,000/- has escaped assessment within the
meaning of Section 147.
5. Findings of AO:
5.1 In view of the facts discussed above, I have reasons to
believe that the income of Rs.90,32,00,000/-, chargeable to tax,
has escaped assessment and re-assessment proceeding u/s 147
for the AY 2012-13 is required to be initiated u/s 147.
6. Reasons for formation of belief:
6.1 The reasons for the formation of belief that the income
chargeable to tax amounting to Rs,90,32,00,000/- has escaped
assessment have been discussed in details in the above
paragraphs 3.4 and 5. This office was in possession of credible
information that Moral Alloys Pvt. Ltd., in an effective period of
4 years (FY 2011-12 to 2014-15) has made turnover of Rs. 856
crores in its bank account no. 9110200042960662. Cash
deposits and cash withdrawals in the said account were Rs. 93
lacs and Rs. 21 lacs respectively.
As per the information, the said account was opened on
23.08.2011 in Axis Bank, Sadar Bazar Branch, New Delhi. The
assessee company was incorporated in September, 2010 and
declared its activity as trading in metals with address
registered as "205, Ajeet Bhawan, Gali no, 214697/6, Ansari
Road, Daryaganj, Delhi-11 0006".
The outflows in the said account were exact equivalent to
inflows and on the same day.
The outflows observed in the account were observed to the
similar entities only. A large no, of debits to companies like
Sterlite Industries Limited was also noticed in the account.
After every withdrawal, the account was left with minimal
balance. Though account had witnessed transactions with
entities into the same line of activity, trend of transactions
raised the suspicion.
Account had seen exceptionally high turnover in a short span of
time and that too, by recording to and fro transactions with the
same group of entities in a similar trend.
In this back ground enquiry has been done for FY 2011-12 only
and findings are discussed below accordingly.
3. The ITR profiling of Moral Alloys Private Limited is
tabulated below:
AY 2012-13 2013-14 2014-15 2015-16 2016-17
Gross Sales/ 6,08,95,72,648 4,65,51,78,891 11,56,68,567 4,92,65,500 3,40,32,938
Turnover
(in Rs.)
Gross Total 3,97,538 12,27,252 2,24,320 2,54,338 1,65,413
Income (in
Rs.)
Total Tax 1,29,490 3,79,220 69,315 78,591 51,112
Payable (in
Rs.)
The directors of the company are Deepak Bansal
(AQOPB3529R) and Nitin Kumar (BCTPK0498J). The ITR
profiling of the directors is as follows:
Deepak Bansal (AQOPB3529R)
AY 2012-13 2013-14 2014-15 2015-16 2016-17
Gross Total 5,12,330 272830 233860 246640 2724050
Income (in
Rs.)
Payable (in
Rs.)
Nitin Kumar (BCTPK0498J)
AY 2012-13 2013-14 2014-15 2015-16 2016-17
Gross Total 383190 314600 261570 244900 281449
Income (in
Rs.)
Total Tax 20929 11804 4282 0 1179
Payable (in
Rs.)
9. To investigate the matter, the bank accounts statement of
Moral Alloys Pvt. Ltd. was requisitioned;
10. It is found from these accounts that major funds were
further transferred to the following entities during FY 2011-
12.
Name of Entities Total Amount in INR PAN
Sterlite Industries Private Limited 90,32,00,000 AABCS4955Q
5. The ITR profiling of the aforementioned entities that have
major credit and debit entries in the bank accounts of Moral
Alloys Pvt Ltd., as mentioned above, are as follows:
STRELITE INDUSTRIES PVT. LTD. (AABCS4955Q)
AY 2012-13 2013-14 2014-15 2015-16 2016-17
Gross 1,80,92,06,00,000 E-filing record not found in the name of the company (this
Sales/Turnover company was amalgamated with Sesa Goa and became
SesaSterlite (Vedanta)
Gross Total 5,24,60,75,074
Income
Total Tax 2,76,65,03,940
Payable
5. In furtherance of the investigation, summons was issued to
Moral Alloys Pvt Ltd. on 13.03.2019 to furnish a detailed note
on its ·business activity carried out during 2011-12 to 2015-16,
explanation for offering very low income for taxation despite
very high turnover/ gross sales during the said period with
supporting documents along with other relevant details.
The Inspector, OCM Cell-2 was deputed to serve the summons
at its registered address as per latest ITR; however, though the
address was there, no entity in the name of Moral Alloys Pvt.
Ltd. ever existed at the said address. Subsequently,
summonses were issued to Sh. Deepak Bansal and Nitin
Kumar, directors of the company at their residential address
(as per their latest ITRs) on 13.03.2019 and Inspector, OCM
Cell-2 was deputed to serve the said summonses, but they' also
could not be traced out at the said addresses and no one in the
vicinity had ever heard about them.
Further, MCA data of Moral Alloys Private Limited and KYC
documents submitted to the bank were analysed but address
provided in those were the same addresses as provided in its
latest ITR.
From the ITR profiling done, as per Para 6, those entities were
chosen for further enquiries whose GTI for FY 2011-12 were
miniscule though their turnover was substantial with Moral
Alloys Pvt Ltd and summonses were issued (ITI of OCM Cell-2
was deputed to serve the summonses) to these prim a facie non-
genuine/ accommodation entry parties (based in Delhi NCR).
These entities are Brilliant Metals Pvt. Ltd, Progressive Alloys
(India) Pvt. Ltd, Unnati Alloys Pvt. Ltd., JBN Impex Private
Limited, Forward Minerals & Metals Private Limited, Bafna
Metals Pvt Ltd, Misawa Impex Pvt. Ltd, Durga Enterprises
and ONS Metals. However, in most cases, summonses could
not be served because though the addresses were found, no
such entities ever existed at their respective addresses. In the
case of Brillaint Metals Pvt Ltd, the existence of the entity was
found at the given address and only one person (caretaker type)
was there. Summon was served upon him. On enquiry, it was
found that there has been no business activity ever on that
premises.
7. The Inspector, OCM Cell-2 was deputed to serve the said
summons at his residential address (as per his latest ITR);
however, he could also not be traced at that address and no
one in the vicinity had ever heard about him.
8. From further enquiry, it has been found that both the
directors of Moral Alloys Private Limited are also directors in
the below mentioned companies:
Name of entity PAN
Forward Minerals and Metals Private Limited AABCF4318A
Unnati Alloys Private Limited AABCUI531E
It is pertinent to note that Moral Alloys Private Limited also
had banking transactions with the aforementioned companies.
Further, Sh. Nitin Kumar, Director of assessee company has a
proprietorship concern, namely Durga Enterprises, which also
had banking transactions with Moral Alloys Private Limited.
Summonses were issued to all these entities but could not be
delivered as the entities were found to be non-existent at those
addresses.
It is found form the Balance sheet of Moral Alloys Private
Limited for A Y 2012- 13 that Moral Alloys Pvt. Ltd had
shareholdings in Brilliant Metals Pvt Ltd, Progressive Alloys
Pvt Ltd, JBN Impex Pvt. Ltd and Unnati Alloys Pvt Ltd. The
transactions done by Moral Alloys Pvt Ltd with these entities
are tabulated below for FY 2011-12-
Transactions done by Moral Alloys Pvt Ltd with these entities
Sales to Moral Alloys Purchase from Moral
Pvt. Ltd. (Dr.) (In Rs) Alloys Pvt. Ltd. (Cr.)
(In Rs)
Brilliant Metals Pvt. Ltd. 20,00,000
Progressive Alloys (India) Pvt. Ltd. 1,75,00,000
JBN Impex Private Limited 20,00,000
Unnati Alloys Pvt. Ltd. 8,70,50,000 1,18,54,08,494
9. From the ITR profile, as mentioned in Table A at para 6, it is
observed that the income shown by majority of these entities in
their ITRs of AY 2012-13 are miniscule as compared to the
volume of their banking transactions with Moral Alloys Private
Limited and also the turnover reported by them in their ITRs.
Therefore, comparison between transactions made by these
entities with Moral Alloys Put Ltd and their GTI for AY 2012-
13 has been drawn and the same is tabulated below-
Parties to whom funds were further TRANSFERRED (i.e. from
whom purchases have been claimed by Moral Alloys Private
Limited or other credits in the nature of unsecured loan, etc.
have been given by Moral Alloys Private Limited to them) from
the bank accounts of Moral Alloys Private Limited during FY
2011-12-
Name of Total PAN GTI as per Registered Remarks
Entities Amount of ITR address
transaction
in INR
Sterlite 90,32,00,000 AABCS4955Q 5,24,60,75,074 Chennai Prima
Industries facie
Private Benefici
Limited ary
Summary of total transaction done by these beneficiaries and
intermediaries with Moral Alloy Pvt Ltd during FY 2011·12·
Prima facie nature of Nature of Other entities Amount involved
transaction (In Rs)
Purchase by Moral Alloys Pvt. Flow of funds to prima facie 2,28,58,89,997
Ltd. or advancement of credits beneficiaries
by it during FY 2011-12
Flow of funds to prima facie 26,18,08,000
intermediaries
Sale by Moral Alloys Pvt Ltd Flow of funds from prima 40,62,41,572
or advancement of credits to it facie beneficiaries
during FY 2011-12
Flow of funds from prima facie 1,60,76,35,833
intermediaries
5. As the two biggest intermediary entities which transferred
funds to Moral Alloys Pvt Ltd during FY 2011-12 were Unnati
Alloys Pvt Ltd and Misawa Impex Private Limited, their bank
account statements (as found from examination of bank
statements of Moral Alloys Pvt. Ltd) were requisitioned,
analysed and major findings are as follows-
Unnati Alloys Pvt Ltd. (A/c No. 911020021179216) for FY 2011·12
Total Credit (INK) 3,47,33,18,549.58
Total Debit (INR) 3,46,65,40,176.46
Misawa Impex Pvt Ltd. (A/c No. 911020025200169 for FY 2011-12
Total Credit (INR) 2,43,76,40,456.85
Total Debit (INR) 2,42,87,26,207.60
It is seen from both the above bank statements that almost all
fund credited in the bank account is transferred further to other
entities on the same day and accounts are left with minimal
balance.
12. In furtherance of the investigation, ITR of Moral Alloys for
AY 2012-13 has been analysed and found following facts-
> Total sales/ gross receipt of business and purchases shown
by Moral Alloy Pvt Ltd for FY 2011-12 were Rs 608.95 Cr and
608.21 Cr respectively.
> Balance sheet of Moral Alloys Pvt Ltd for AY 2012-13 does
not support any significant loan advanced by Moral Alloy
(loan advanced worth Rs 2.03 Cr only) or received by it (Rs
zero) as on the year end date. Therefore, transactions done by
Moral Alloys Pvt Ltd with above mentioned entities vide para
5 appear to be mainly in the nature of sale and purchase.
> Moral Alloys Pvt Ltd claimed very less operational expenses
for FY 2011- 12 against huge revenue from sales of Rs 608.95
Cr. It claimed Employee benefit expenses- Rs 5.39 lac,
depreciation expense- Rs 1.37 lac, Rent- Rs 1.63 lac,
Commission paid-Rs 11.87 lac, and cost freight- Rs 20.73 lac
only. Its total paid up capital is only Rs 1.0 Lac and fixed
assets are only Rs 2.22 Lac for A Y 2012-13. These facts
further corroborate that it has/ had no genuine business.
> It is also evident from ITRs of both the directors of Moral
Aloys Put Ltd for AY 2012-13 that no salary income was
shown by them.
13. In view of the above, ITR profile done vide para 6 & 12
and comparative chart tabulated vide para 11 & 12 it becomes
clear that Moral Aloys Pvt Ltd and other entities such as
Brilliant Metals Pvt. Ltd, Progressive Alloys (India) Pvt. Ltd,
Unnati Alloys Pvt. Ltd., JBN Impex Private Limited, Forward
Minerals & Metals Private Limited, Swift: Vanija Pvt Ltd,
Bafna Metals Pvt Ltd, Misawa Impex Pvt. Ltd, Durga
Enterprises and ONS Metals, etc. are involved in similar
nature of activity of giving and taking non-genuine
accommodation entries. Other entities identified are prim a
facie beneficiaries are ultimate beneficiaries of these sham
transactions/non-genuine entries.
The assessee M/s Sterlite Industries Pvt. Ltd. (now merged into
Vedanta Ltd.) is one of the beneficiary in case of Moral Alloys
Pvt. Ltd. and has received accommodation entries from Moral
Alloys Pvt. Ltd. The assessee has received accommodation
entries to the tune of Rs. 90,32,00,000/- from round routing of
funds through Moral Alloys Pvt. Ltd. In the investigation report
mentioned above the modus operandi of cash deposit and cash
withdrawal has been duly noted. After each withdrawal account
was left with minimal balance.
There is exceptionally high turnover. Further summons
issued to Moral Alloys Pvt. Ltd. by the Investigation Wing has
not been complied in law and spirit as discussed above. Several
round routing of funds have been established in the
investigation report. Further, field investigation have shown
that it is appearing as bogus company.
I have perused the above detailed information received
from the Investigation Wing and after analysing the above
information I am satisfied that the assessee has received
accommodation entries from Moral Alloys Pvt. Ltd. This receipt
of accommodation entries from the above Company was not
known to the AO at the time of completion of original
assessment, hence, no inquiry was conducted on this issue.
The above report was received on 29.03.2019 and it has been
perused thoroughly. It is evident that the assessee has received
accommodation entries and as a result of which income of
Rs.90,32,00,000/- has escaped assessment within the meaning
of Section 147.
In view of the facts discussed above, I have reasons to believe
that the income of Rs:90,32,00,000/- , chargeable to tax, has
escaped assessment and re-assessment proceeding u/s 147 for
the AY 2012-13 is required to be initiated u/s 147.
Discussion on "change of opinion"
It is pertinent to mention that though assessment has been
completed u/s 143(3) in the above case but there was no
formation of opinion by the AO on the above issues as no
specific questionnaire on the above issues were raised by the
AO nor there was any submission on the above issues by the
assessee. Thus, it is not a case of change of opinion as for the
change of opinion there has to be an opinion first.
The Hon'ble Delhi High Court has held in case of
Commissioner of Income-tax-VI, New Delhi v. Usha
International Ltd. [2012] 25 taxmann.com 200 (Delhi) (FB) has
held in respect of principle of "change of opinion" that when
specific query is raised by the AO and it is answered by the
assessee then it will be termed as 'change of opinion'. The
relevant extract of the above judgment is reproduced below:-
13. It is, therefore, clear from the aforesaid position that:
(1) Reassessment proceedings can be validly initiated in case
return of income is processed under Section 143(1) and no
scrutiny assessment is undertaken. In such cases there is no
change of opinion;
(2) Reassessment proceedings will be invalid in case the
assessment order itself records that the issue was raised and is
decided in favour of the assessee. Reassessment proceedings in
the said cases will be hit by principle of "change of opinion".
{3} Reassessment proceedings will be invalid in case an issue
or query is raised and answered by the assessee in original
assessment proceedings but thereafter the Assessing Officer
does not make any addition in the assessment order. In such
situations it should be accepted that the issue was examined but
the Assessing Officer did not find any ground or reason to make
addition or reject the stand of the assessee. He forms an
opinion. The reassessment will be invalid because the Assessing
Officer had formed an opinion in the original assessment,
though he had not recorded his reasons.
The Hon'ble Apex Court in case of CIVIL APPEAL NO. 2732
OF 2007Income Tax Officer Ward No. 16(2) Versus M/s
TechSpan India Private Ltd. & Anr. Has held that-
If the assessment order is non-speaking, cryptic or perfunctory
in nature, it may be difficult to attribute to the assessing officer
any opinion on the questions that are raised in the proposed
reassessment proceedings. Every attempt to bring to tax,
income that has escaped assessment, cannot be absorbed by
judicial intervention on an assumed change of opinion even in
cases where the order of assessment does not address itself to a
given aspect
The above judgement is squarely applicable in case of assessee
as the AO in the original assessment has nowhere discussed the
above issue.
Fresh material/information
In this case fresh facts/materials regarding the escapement of
income was received from the Investigation Wing as discussed
above.
The Hon'ble Madras High Court in case of M/s. SUN Direct TV
Pvt. Ltd. v ACIT (W.P. No.44311 of 2016, 10.10.2018) has held
that - "if the assessment is finalised, the reopening in respect of
the escaped assessments can be made if any new materials or
suppression of materials are identified."
The Hon'ble Apex Court has held in case of M/s Larsen &
Toubro Ltd. v. State of Jharkhand & Others CIVIL APPEAL
NO. 5390 OF 2007 that Audit Objection is an "information" .
The Hon'ble jurisdictional Delhi High Court in case of FIS
GLOBAL BUSINESS SOLUTIONS INDIA PVT. LTD. v. Pr.
CIT-3 W.P.(C) 12277/2018, C.M. APPL.47539/2018 has also
held that Audit Objection is "information" for the purpose of
Section 147.
No "full and true disclosure" in the original assessment
proceeding
There was no full and true disclosure by the assessee as the
assessee failed to disclose that it has received accommodation
entries from the above Company.
Explanation to Section 147 of the Income Tax Act is reproduced
below:-
"Production before the Assessing officer of account books or
other evidence from which material evidence could with due
diligence have been discovered by the Assessing Officer will not
necessarily amount to disclosure within the meaning of the
foregoing proviso."
In case of Sri Krishna (P) Ltd. v. ITO [1996] 221 ITR 538/87
Taxman 315 (SC) it has been held by the Hon'ble Apex Court,
in the context of "full and true disclosure" that:-
"Every disclosure is not and cannot be treated to be a full and
true disclosure. A disclosure may be a false one or true one. It
may be a full disclosure or it may not be. A partial disclosure
may often be a misleading one. What is required is a full and
true disclosure of all material facts necessary for making
assessment for that year. This calls for examination of the
decisions of the court analyzing and elucidating section 147
and 148. The obligation on the assessee to disclose the material
facts - or what are called primary facts- is not a mere
disclosure but a disclosure which is full and true. A false
disclosure is not a true disclosure. The disclosure must not only
be true but must be full „fully and truly'. A fake assertion, or
statement, of material fact, therefore, attracts the jurisdiction of
the ITO under section 147."
In case of Honda Siel Power Products Ltd. vs. The Deputy
Commissioner of Income Tax ,and Anr., W.P.(C) No.
9036/2007, decision dated 14th February, 2011, the
jurisdictional High Court has held that :-
"10. ...... The term "failure" on the part of the assessee is not
restricted only to the income-tax return and the columns of the
income-tax return or the tax audit report. This is the first stage.
The said expression "failure to fully and truly disclose material
facts" also relate to the stage of the assessment proceedings,
the second stage. There can be omission and failure on the part
of the assessee to disclose fully and truly material facts during
the course of the / assessment proceedings. This can happen
when the assessee does not disclose or furnish to the Assessing
Officer complete and correct information and details it is
required and under an obligation to disclose. Burden is on the
assessee to make full and true disclosure. "
In Kantamani Venkata Narayana and Sons v. First Addl. ITO
[1967] 63 ITR 638, the Hon'ble Apex Court has held that from
a mere production of the books of account, it could not be
inferred that there had been full disclosure of the material facts
necessary for the purposes of assessment. The terms of the
Explanation, declared the court, were too plain to permit an
argument that the duty of the assessee to disclose fully and truly
all material facts would stand discharged when he produces the
books of account or evidence which has a material bearing on
the assessment. The Hon'ble Court has observed that:-
''It is the duty of the assessee to bring to the notice of the
Income tax Officer particular items in the books of account or
portions of documents which are relevant. Even if it be assumed
that from the books produced, the Income- tax Officer, if he had
been circumspect, could have found out the truth, the Income-
tax Officer may not on that account be precluded from
exercising the power to assess income which had escaped
assessment. "
Thus, neither this is a case of "change of opinion." nor there
was a "full and true disclosure" by the assessee.
Therefore, I have reason to believe that Rs.90,32,00,000/- has
escaped assessment and its unexplained. It is evident that
income chargeable to tax has escaped assessment for this year
by the reasons of the failure on the part of the assessee to
disclose fully and truly all material facts. Therefore it is a fit
case for the issuance of notice u/s 148 of the Act for the
financial year 2011- 12 relevant to assessment 2012·13.
7. Applicability of the provisions of section 147/151:
7.1 In this case return of income was filed for the year under
i.e. A.Y.2012-13 at an income of Rs. 519,60,75,070/- on
30.11.2012and the only requirement to initiate proceedings u/s
1417 is reason to believe which have been recorded above.
In this case, return was filed and regular assessment u/s 143(3)
was made on 03.05.2016. It is evident from the above facts that
the assessee had not truly and fully disclosed material facts
necessary for his assessment for the year under consideration
thereby necessitating reopening u/s 147 of the Act.
It is true that the assessee has filed a copy of annual report and
audit P&L A/c and balance sheet alongwith return of income
where various information/material were disclosed. However,
the requisite full and true disclosure of all material facts
necessary for assessment has not been made as noted above. It
is pertinent to mention here that even though the assessee has
produced books of accounts, annual report, audited P&L and
balance sheet or other evidence as mentioned above, the
requisite material facts as noted above in the reasons for
reopening were embedded in such a manner that material
evidence could not be discovered by the AO and could have
been discovered with due diligence.
It is evident from the above discussion that in this case, the
issues under consideration were never examined by the AO
during the course of regular assessment/reassessment. In view
of above, provisions of clause(c) of explanation 2 to section 147
are applicable to facts of this case and the assessment year
under consideration is deemed to be a case where income
chargeable to tax has escaped assessment."
(emphasis supplied)
12. When the matter came up before this Court for preliminary hearing on
12.12.2019, the submission advanced on behalf of the petitioner was that the
Investigation Report relied upon by the Assessing Officer drew a distinction
between entities - who had genuinely transacted business with Moral during
the financial year 2011-12, and who had not. It was argued that so far as
SIPL is concerned, the Investigation Report itself found the sales undertaken
by it to Moral to be genuine. It was argued that merely because Moral may
have had transactions with others, which may raise doubts about their
genuineness, is no reason to suspect all transactions undertaken by Moral,
including those with SIPL, and that SIPL is only concerned with its
transactions with Moral, and nothing more.
13. In the light of the aforesaid submission, we directed the Revenue, who
was represented on advance notice, to produce the Investigation Report
before this Court in a sealed cover on the next date of hearing. The matter
was adjourned to 19.12.2019 for the said purpose. On 19.12.2019, it was
further adjourned to 20.12.2019, when it was heard.
14. Ms. Malhotra, learned senior standing counsel produced the
Investigation Report, which is referred to, and forms the basis of the
impugned notice, in a sealed cover. The same was opened and report
perused by us. A perusal of the said Investigation Report reveals that there
is no such distinction sought to be made with regard to SIPL, or any other
entity, in the said report. The said Investigation Report does not carve out
SIPL as an exception, and does not state that the transactions undertaken
between Moral and SIPL were found to be genuine, unlike the other
transactions undertaken by Moral with other entities named in the
Investigation Report. On the contrary, the said Investigation Report
highlights SIPL as one of the entities in whose account, large amounts have
been transferred by Moral during the financial year 2011-12. Paragraph 5 of
the said Investigation Report contains the said tabulation, enlisting the
entities to whom funds were transferred by Moral. We find that SIPL is the
recipient of the highest amount from Moral, as found in the said tabulation,
of Rs. 90.32 crores. A perusal of the Investigation Report extracts whereof
are contained in the reasons for re-opening, belies the submission of learned
counsel for the petitioner that the transactions undertaken by Moral were
found to be partly genuine, if not completely genuine.
15. The submission of learned counsel for the petitioner that the
Assessing Officer has acted on the basis of borrowed wisdom contained in
the Investigation Report is also meritless. We have consciously extracted
the discussion/ analysis found in the reasons recorded by the Assessing
Officer to justify the re-opening of the re-assessment. The Assessing
Officer states that he has perused and analysed the investigation report. The
mere fact that SIPL has accounted for all the receipts from Moral in its
books of accounts, and has also offered the same to tax, can never be a
defence when a serious allegation - of the transactions undertaken by SIPL
with Moral not being genuine, has been raised. Ms. Malhotra has pointed
out that the sale transactions allegedly undertaken by SIPL with Moral in the
financial year 2011-12 were all exempted from payment of other taxes and,
consequently, the possibility of the said transactions being sham, and merely
paper transactions, is accentuated.
16. In Assistant CIT Vs. Rajesh Jhaveri Stock Broker Pvt. Ltd., (2008)
14 SCC 208, the Supreme Court has held that the expression „reason‟ in
Section 147 of the Act means a "cause" or "justification". The Assessing
Officer can be said to have reason to believe that income has escaped
assessment, if he has a cause or justification to know, or suppose, that
income has escaped assessment.
17. In Sri Krishna Pvt. Ltd. V. Income Tax Officer, (1996) 87 Taxman
315 (SC), it was emphasised that the enquiry at the stage of finding out
whether the reassessment notice is valid, is only to see whether there are
reasonable grounds for the Income Tax Officer to believe - and not that the
omission and escapement of income is established.
18. We have dealt with similar submissions - as advanced by learned
counsel for the petitioner, in several other decisions recently. It is obvious
that whenever an assessee takes or provides accommodation entries, one part
of the transaction would appear to be completely transparent; through
banking channels, and the recipient of the funds would disclose the same in
his returns and offer the same to tax - if such receipts constitute income
liable to tax. The mere disclosure of a part of the transaction in its records
by the assessee is not sufficient to establish the genuineness of the
transaction. In RDS Project Limited Vs. Asst. Commissioner of Income
Tax New Delhi & Anr., W.P.(C.) No. 11274/19 decided on 23.10.2019, the
petitioner's assessment was sought to be re-opened under Section 148 of the
Act on the premise that it had received funds from two entities viz. M/s
Shail Investment Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. - two
companies promoted by one Tarun Goyal. We rejected the challenge to the
re-opening while observing as follows:
"38. We are not suggesting that all monetary transactions of a
person/ entity indulging in the activity of providing
accommodation entries, would justify the entertainment of a
belief, that the taxable income of the third parties - with whom
such monetary transactions are undertaken, has escaped
assessment. This is because, the person/ entity found to be
indulging in the activity of providing accommodation entries,
may have entered into some genuine transactions as well. It
would be essential for the Assessing Officer of such third party/
parties to find a live-link, i.e. a link which is actionable between
the person/ entity indulging in the activity of providing
accommodation entries and such third party/ Assessee. The
person who has undertaken such financial transaction(s) with
such a person/ entity (the bogus entry provider), cannot avoid
further scrutiny of such a transaction by laying a challenge to
the re-opening of the assessment under Section 147/148 of the
Act when the re-opening is, otherwise, within the period of
limitation.
39. In the present case, the live-link between the said
material information, and the formation of the belief that
taxable income has escaped assessment is the fact that the
petitioner, admittedly, received Rs. 4.10 crores from M/s Shail
Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. -
each. This live-link is actionable as it was found and acted
upon within the period of limitation under the proviso to
Section 147 of the Act.
40. No doubt, on the one hand, sanctity of concluded
assessment proceedings needs to be protected, and an assessee
should be protected against undue harassment by the taxation
authorities by resort to re-opening of the concluded assessment.
However, when subsequently, it comes to light that the
assessee has had financial/ monetary dealings with dubious
entities/ persons - such as bogus accommodation entry
providers, including of the kind noticed hereinabove, giving
rise to a serious and well founded doubt about the
creditworthiness of the investor and genuineness of the
transaction, the endeavour of the Assessing Officer to re-open
the assessment in terms of section 147/148 of the Act should
normally not be thwarted by the Court, if the same is done
within the limitation period, and the same is not merely a case
of change of opinion on the same set of facts. A serious and
well founded doubt about the genuineness of the transaction
would justify formation of the reasonable belief that taxable
income has escaped assessment in the light of the scheme of
Section 68 of the Act, which provides that cash credits which,
in the opinion of the Assessing Officer are not satisfactorily
explained, would be charged to income tax as the income of
the assessee. The subsequent acquisition of knowledge that
the monetary transaction (including of the kind discussed
above) undertaken by the assessee was with a bogus entity/
person-such as an accommodation entry provider - which
knowledge was not available to the Assessing Officer at the
time of completion of the scrutiny assessment, would be a
material change of circumstances, and the formation of belief
that taxable income has escaped assessment would not suffer
from the taint of simplicitor change of opinion." (emphasis
supplied)
19. In this decision, we also noticed the decision of the Supreme Court in
Principal Commissioner of Income Tax (Central)- I v. NRA Iron & Steel
Pvt. Ltd., (2019) 412 ITR 161 (SC) decided on 05.03.2019. The respondent
assessee had shown receipt of share capital/ premium during the financial
year 2009-10 aggregating to Rs.17.60 crore from 19 companies - some of
which were based in Mumbai, some in Kolkata and some in Gauhati. Shares
having face value of Rs.10 were subscribed by the said 19 investor
companies in the assessee company at a premium of Rs.190 per share. It
appears that the original assessment was completed and the investment made
by the said 19 companies in the share capital/ premium of the respondent
assessee company was accepted by the AO. Subsequently, a notice under
section of the Act was issued on 13.04.2012 to reopen the assessment, for
reasons recorded therein. The assessee filed its objections, which were
rejected. Summons/ notices were also issued to the representatives of the
investor companies. However, none appeared on behalf of either of them.
The stand of the assessee company was that the amounts had been received
through normal banking channels through account payee cheques/ demand
drafts and, therefore, there was no cause to take recourse to section 68 of the
Act. The assessee claimed that it had discharged the onus upon it to
establish the genuineness of the transactions under section 68 of the Act.
20. The AO made inquiries with regard to the genuineness of the
transactions of investment in share capital with premium in the assessee
company. In the independent inquiry, the AO found that the investor
companies despite service of notice did not appear; that in respect of some
of them, their office was found closed; some other entities were found not
existing at the given address; in some cases, the premises was found to be
owned by some other person. Consequently, notices could not be served in
these cases. Even when they responded, the investor companies did not
provide justification for applying in equity shares in the assessee company at
a premium of Rs.190 per share.
21. The replies submitted by the investor companies were found to be
incomplete and unsatisfactory. In regard to the said 19 investor companies,
the finding recorded by the AO has been paraphrased by the Supreme Court
in the following words:
"The AO recorded that the enquiries at Mumbai revealed that
out of the four companies at Mumbai, two companies were
found to be non-existent at the address furnished.
With respect to the Kolkata companies, the response came
through dak only. However, nobody appeared, nor did they
produce their bank statements to substantiate the source of the
funds from which the alleged investments were made.
With respect to the Guwahati companies - Ispat Sheet Ltd. and
Novelty Traders Ltd., enquiries revealed that they were non-
existent at the given address."
22. On the basis of the detailed inquiry, the AO found that:
"i. None of the investor-companies which had invested amounts
ranging between Rs. 90,00,000 and Rs. 95,00,000 as share
capital in the Respondent Company - Assessee during the A.Y.
2009-10, could justify making investment at such a high
premium of Rs. 190 for each share, when the face value of the
shares was only Rs. 10;
ii. Some of the investor companies were found to be
nonexistent;
iii. Almost none of the companies produced the bank statements
to establish the source of funds for making such a huge
investment in the shares, even though they were declaring a
very meagre income in their returns;
iv. None of the investor-companies appeared before the A.O.,
but merely sent a written response through dak.
The AO held that the Assessee had failed to discharge the onus
by cogent evidence either of the credit worthiness of the so-
called investor-companies, or genuineness of the transaction."
23. Consequently, the AO added back the amount of Rs.17.60 crores to
the total income of the assessee for the assessment year in question.
24. The CIT (Appeals) allowed the assessee's appeal by observing, inter
alia, that if the relevant details of the address of PAN identity of the creditor/
subscriber along with copies of the shareholders register, share application
form, share transfer register etc. are available, the same would constitute
acceptable proof or acceptable explanation by the assessee and that the
department would not be justified in drawing an inference, only because the
creditor/ subscriber fails or neglects to respond to the notice issued by the
AO. In support of this conclusion, the CIT (Appeals) relied upon a decision
of this Court in CIT v. Lovely Exports Pvt. Ltd., (2008) 299 ITR 268
(Delhi). The ITAT dismissed the Revenue's appeal on 16.10.2017 on the
ground that the assessee had discharged their primary onus to establish the
identity and creditworthiness of the investors, especially when the investor
companies had filed their return and were being assessed. The Revenue's
appeal before this court i.e. ITA No.244/2018 under section 260A of the Act
was dismissed on 26.02.2018 on the ground that the issues raised before the
High Court were factual, and that the lower appellate authorities had taken
sufficient time to consider the relevant circumstances. This court held that
no substantial question of law arose for its consideration.
25. In this background, the department appealed before the Supreme
Court. The respondent assessee did not appear before the Supreme Court
despite service. The Supreme Court heard the appeal on merits and
considered the issue whether the respondent assessee had discharged the
primary onus to establish the genuineness of the transaction required under
section 68 of the Act. The Supreme Court held that the use of the words
"any sum found credited in the books" in section 68 of the Act indicates that
the section is widely worded, and includes investments made by the
introduction of share capital or share premium. The Supreme Court relied
on CIT v. Precision Finance Pvt. Ltd., (1994) 208 ITR 465 (Cal), wherein
the Court held that the assessee was expected to establish to the satisfaction
of the AO:
"• Proof of Identity of the creditors;
• Capacity of creditors to advance money; and
• Genuineness of transaction"
26. The Supreme Court also took note of its decision in Kale Khan
Mohammad Harif v. CIT, (1963) 50 ITR 1 (SC), and Roshan Di Hatti v.
CIT, (1977) 107 ITR (SC), wherein it had laid down the onus of proving the
source of money found to have been received by the assessee, is on the
assessee. Once the assessee has submitted the documents relating to
identity, genuineness of the transactions and creditworthiness of the payee,
then the AO must conduct an inquiry and call for more details before
invoking section 68. If the assessee is not able to provide a satisfactory
explanation of the nature and source of investment made, it is open to the
revenue to hold that such investment is the income of the assessee, and that
there would be no further burden on the revenue to show that the income is
from any particular source. The Supreme Court also observed that with
respect to the genuineness of the transaction, it is for the assessee to prove
the same by cogent and credible evidence, since the investment was claimed
to have been made in the share capital of the assessee company, it was for
the assessee to establish that it was a genuine investment, since the facts are
exclusively within the assessees knowledge. The Supreme Court also
noticed the decision of this Court in CIT v. Oasis Hospitalities Pvt. Ltd.,
(2011) 333 ITR 119 (Delhi), wherein this Court observed:
"The initial onus is upon the assessee to establish three things
necessary to obviate the mischief of Section 68. Those are: (i)
identity of the investors; (ii) their creditworthiness/investments;
and (iii) genuineness of the transaction. Only when these three
ingredients are established prima facie, the department is
required to undertake further exercise."
27. Merely providing the identity of the investors does not discharge the
onus of the assessee, if the capacity or creditworthiness has not been
established. The Supreme Court also took note of the decision of the
Calcutta High Court in Shankar Ghosh v. ITO, (1985) 23 ITJ (Cal), where
the assessee failed to prove the financial capacity of the person from whom
he had allegedly taken the loan. The said loan amount was rightly held to be
the assessee's own undisclosed income.
28. The Supreme Court also placed reliance on CIT v. Kamdhenu Steel &
Alloys Ltd., (2012) 206 Taxman 254 (Delhi), wherein the Court had
observed:
"38. Even in that instant case, it is projected by the Revenue
that the Directorate of Income Tax (Investigation) had
purportedly found such a racket of floating bogus companies
with sole purpose of lending entries. But, it is unfortunate that
all this exercise if going in vain as few more steps which should
have been taken by the Revenue in order to find out causal
connection between the case deposited in the bank accounts of
the applicant banks and the assessee were not taken. It is
necessary to link the assessee with the source when that link is
missing, it is difficult to fasten the assessee with such a
liability."
29. It was held that the AO ought to have conducted an independent
inquiry to verify the genuineness of the credit entries.
30. The Supreme Court also noticed several other decisions relating to the
issue of unexplained credit entries/ share capital subscriptions. We may
quote the relevant extract from the decision of the Supreme Court in this
regard:
"i. In Sumati Dayal v. CIT, (1995) 214 ITR 801(SC)this
Court held that:
"if the explanation offered by the assessee about
the nature and source thereof is, in the opinion of
the Assessing Officer, not satisfactory, there is
prima facie evidence against the assessee, vis., the
receipt of money, and if he fails to rebut the same,
the said evidence being unrebutted can be used
against him by holding that it is a receipt of an
income nature. While considering the explanation
of the assessee, the department cannot, however,
act unreasonably"
ii. In CIT v. P. Mohankala, 291 ITR 278, this Court held
that:
"A bare reading of section 68 of the Income-tax
Act, 1961, suggests that (i) there has to be credit of
amounts in the books maintained by the assessee ;
(ii) such credit has to be a sum of money during
the previous year ; and (iii) either (a) the assessee
offers no explanation about the nature and source
of such credits found in the books or (b) the
explanation offered by the assessee, in the opinion
of the Assessing Officer, is not satisfactory. It is
only then that the sum so credited may be charged
to Income-tax as the income of the assessee of that
previous year. The expression "the assessee offers
no explanation" means the assessee offers no
proper, reasonable and acceptable explanation as
regards the sums found credited in the books
maintained by the assessee.
The burden is on the assessee to take the plea that,
even if the explanation is not acceptable, the
material and attending circumstances available on
record do not justify the sum found credited in the
books being treated as a receipt of income
nature."
(emphasis supplied)
iii. The Delhi High Court in a recent judgment delivered in
PR.CIT-6, New Delhi v. NDR Promoters Pvt. Ltd., 410 ITR 379
upheld the additions made by the Assessing Officer on account
of introducing bogus share capital into the assessee company
on the facts of the case.
iv. The Courts have held that in the case of cash credit
entries, it is necessary for the assessee to prove not only the
identity of the creditors, but also the capacity of the creditors to
advance money, and establish the genuineness of the
transactions. The initial onus of proof lies on the assessee. This
Court in Roshan Di Hatti v. CIT, (1992) 2 SCC 378, held that if
the assessee fails to discharge the onus by producing cogent
evidence and explanation, the AO would be justified in making
the additions back into the income of the assessee.
v. The Guwahati High Court in Nemi Chand Kothari v.
CIT, (2003) 264 ITR 254 (Gau.) held that merely because a
transaction takes place by cheque is not sufficient to discharge
the burden. The assessee has to prove the identity of the
creditors and genuineness of the transaction.:
"It cannot be said that a transaction, which takes
place by way of cheque, is invariably sacrosanct.
Once the assessee has proved the identity of his
creditors, the genuineness of the transactions
which he had with his creditors, and the
creditworthiness of his creditors vis-a-vis the
transactions which he had with the creditors, his
burden stands discharged and the burden then
shifts to the revenue to show that though covered
by cheques, the amounts in question, actually
belonged to, or was owned by the assessee
himself"
(emphasis supplied)
vi. In a recent judgment the Delhi High Court in CIT v. N.R.
Portfolio (P.) Ltd. [2014] 42 taxmann.com 339/222 Taxman
157 (Mag.) (Delhi), held that the credit-worthiness or
genuineness of a transaction regarding share application
money depends on whether the two parties are related or known
to each other, or mode by which parties approached each other,
whether the transaction is entered into through written
documentation to protect investment, whether the investor was
an angel investor, the quantum of money invested, credit-
worthiness of the recipient, object and purpose for which
payment/investment was made, etc. The incorporation of a
company, and payment by banking channel, etc. cannot in all
cases tantamount to satisfactory discharge of onus.
vii. Other cases where the issue of share application money
received by an assessee was examined in the context of Section
68 are CIT v. Divine Leasing & Financing Ltd. (2007) 158
Taxman 440, and CIT v. Value Capital Service (P.) Ltd. [2008]
307 ITR 334."
31. The principles culled out by the Supreme Court are contained in para
11 of its judgment, which read as follows:
"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 credit-worthiness 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."
32. The Supreme Court found that the AO had made inquiries, which
revealed that there was no material on record to prove that the share
application money had been received from independent entities, some of
which were found to be non-existent and had no office at the address
mentioned by the assessee. Some of the investor companies were found to
lack the financial capacity to make such investments, and there was no
explanation as to why the investor companies had subscribed to the shares of
the assessee company at high premium of Rs.190 per share, when the face
value was only Rs.10 per share. Moreover, the investor companies had not
established the source of funds from which the high share premium was
invested. Mere mention of the income tax file number of the investor was
not sufficient to discharge the onus under section 68 of the Act. The
Supreme Court held that the lower authorities, namely, the CIT (Appeals)
and the ITAT had ignored the detailed findings of the AO and that they had
erroneously held that merely because the assessee had filed all the primary
evidence, the onus on the assessee under section 68 of the Act stood
discharged. The Supreme Court held:
"13....................The lower appellate authorities failed to
appreciate that the investor companies which had filed income
tax returns with a meagre or nil income had to explain how they
had invested such huge sums of money in the Assesse Company
- Respondent. Clearly the onus to establish the credit
worthiness of the investor companies was not discharged. The
entire transaction seemed bogus, and lacked credibility. The
Court/Authorities below did not even advert to the field enquiry
conducted by the AO which revealed that in several cases the
investor companies were found to be non-existent, and the onus
to establish the identity of the investor companies, was not
discharged by the assessee.
14. The practice of conversion of un-accounted money
through the cloak of Share Capital/Premium must be
subjected to careful scrutiny. This would be particularly so in
the case of private placement of shares, where a higher onus
is required to be placed on the Assessee since the information
is within the personal knowledge of the Assessee. 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.
15. On the facts of the present case, clearly the Assessee
Company - Respondent failed to discharge the onus required
under Section 68 of the Act, the Assessing Officer was justified
in adding back the amounts to the Assessee's income."
(emphasis supplied)
33. Consequently, the appeal preferred by the Revenue was allowed by
the Supreme Court.
34. Though the said decision was rendered by the Supreme Court while
dealing with a Civil Appeal arising from a decision of this Court dismissing
the appeal under section 260A of the Act, the findings returned by the
Supreme Court, as extracted herein above, are extremely pertinent and
relevant in the present context as well.
35. The petitioner does not deny the fact that it, indeed, had financial
transactions with Moral, whereunder it received substantial amounts of
Rs.90.32 crores in FY 2011-12. Moral has been found to be indulging in
provision of accommodation entries, and it appears that it carried out only
that business and nothing else. There is nothing to show that while passing
the assessment order, the Assessing Officer had examined the aspect of
genuineness of the transaction undertaken by the petitioner with Moral. A
perusal of the original assessment order shows that the Assessing Officer
had accepted the claim made by the petitioner/ assessee with regard to the
genuineness of the transaction without any scrutiny, and by accepting the
statement of the petitioner as truthful. At that stage, the material
information, which the petitioner withheld, and did not disclose, was that it
was dealing with an entity who was engaged in the business of providing
accommodation entries.
36. Thus, the Assessing Officer had very good reasons to believe that the
amounts received by the petitioner from Moral also partake of the same
colour as the other transactions of Moral undertaken with other entities. The
whole business model of Moral, as is evident from the Investigation Report,
was merely to rotate funds by resort to a process of layering through other
entities such as M/s Brilliant Metals Pvt. Ltd., M/s Progressive Alloys
(India) Pvt. Ltd, M/s Unnati Alloys Pvt. Ltd., M/s Forward Minerals &
Metals Private Limited etc., taken note of in the Investigation Report. It
appears from the Investigation Report that Moral had nothing to show for, to
establish the undertaking of any genuine sale and purchase, of much less of
the products that the petitioner claims to have sold to Moral.
37. In RDS Project Limited (supra), we further observed:
"31. One is known by the company one keeps. Sh. Tarun
Goyal has been established to be engaged in the business of
providing accommodation entries. He is the promoter of about
90 companies from the same set of addresses as aforesaid.
Amongst the companies promoted by him are M/s Shail
Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd.
These two companies have made investments in the petitioner/
assessee company during the previous year relevant to the
assessment year in question as share application money. The
aforesaid background raises serious doubts about the character
of M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits
Pvt. Ltd., as being mere vehicles for providing accommodation
entries. These two companies appear to have dubious
character and, thus, the genuineness of the transactions that
these two companies have undertaken with the petitioner has
come under a serious cloud, giving rise to a reasonable belief
in the mind of the Assessing Officer that the petitioner may have
indulged in a dubious transaction with the said M/s Shail
Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. to
launder its undisclosed income.
32. Pertinently, the petitioner does not dispute having
received monies from these two dubious companies.
33. In our view, since the petitioner does not dispute the
receipt of monies from M/s Shail Investments Pvt. Ltd. and M/s
New Delhi Credits Pvt. Ltd. towards alleged capital infusion,
the belief formed by the Assessing Officer, that taxable income
of the petitioner has escaped assessment cannot, but, be
described as reasonable.
34. The mere fact that the petitioner had produced evidence
before the Assessing Officer during the scrutiny assessment
proceeding that the said amount had been received as share
application money from M/s Shail Investments Pvt. Ltd. and
M/s New Delhi Credits Pvt. Ltd., and the fact that M/s Shail
Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. may
have invested monies in the assessee company for allotment of
shares, is neither here, nor there. This is for the reason that
one part of any such transaction would invariably be conducted
through banking channels and would be duly recorded -
whether the same is genuine or not. That is how money would
be laundered. Thus, the fact that the monetary transaction has
been conducted through a banking channel, and is
acknowledged, does not render the opinion of the Assessing
Officer regarding the escapement of taxable income illegal or
unreasonable since, at the time of the conduct of scrutiny
assessment proceedings, the assessee did not disclose the
material fact that the so called investor - in this case M/s Shail
Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd., are
promoted by Sh. Tarun Goyal, who is engaged in the business
of providing accommodation entries, and the Assessing Officer
had no basis to so assume. In fact, the assessment order dated
07.07.2014 passed by him is completely silent and innocuous on
the said aspect.
x x x x x x x x x
41. One cannot lose sight of the fact that once the
proceedings are re-opened, the assessee would have full
opportunity to meet the material/ evidence that the Assessing
Officer may seek to rely upon to re-compute the taxable income
in accordance with law. Moreover, an assessment order passed
by the Assessing Officer would be open to challenge in appeal
under the Act."
38. This Court also noticed its earlier decision in Chetan Sabharwal v.
Assistant Commissioner of Income Tax, Circle 28 (1), W.P.(C.) No.
10897/2015 along with other connected petitions, decided on 06.08.2019. In
the said decision, the Court, inter alia, held as follows:
41. As far as the case of Mr. Chetan Sabharwal is concerned,
the original assessment orders for both AYs under Section
143(3) of the Act do not give any indication on the AO having
formed any opinion whatsoever on the basis of which the
reopening has been ordered. In this context the following
observations in Income Tax Officer Ward No. 16 (2) v.
Techspan India Pvt. Ltd. are relevant.
"18. Before interfering with the proposed
reopening of the assessment on the ground that the
same is based only on a change in opinion, the
court ought to verify whether the assessment
earlier made has either expressly or by necessary
implication expressed an opinion on a matter
which is the basis of the alleged escapement of
income that was taxable. If the assessment order
is non-speaking, cryptic or perfunctory in nature,
it may be difficult to attribute to the assessing
officer any opinion on the questions that are raised
in the proposed reassessment proceedings. Every
attempt to bring to tax, income that has escaped
assessment, cannot be absorbed by judicial
intervention on an assumed change of opinion
even in cases where the order of assessment does
not address, itself to a given aspect sought to be
examined in the reassessment proceedings."
42. Consequently, even in the cases of Mr. Chetan Sabharwal in
view of the fact that the original assessment orders are totally
silent on this aspect of the matter, it cannot be said that the
reason to believe constitutes a "change of opinion‟.
43. At this juncture it must be stated that on a perusal of the
report of the investigation which was produced before this
Court, it appears prima facie that there was sufficient material
to justify the reopening of the assessment in both sets of cases.
Further, upon reading the reasons to believe as a whole the
"live link"between the material in the form of the investigation
report and the formation of belief that income that has escaped
assessment is prima facie discernable. The Court hastens to
add that this is a prima facie view which is all that is necessary
at this stage.
44. The Court in this context would like to refer to the following
observations of the Supreme Court in ITO v. Selected
Dalurband Coal Limited (supra) where it was considering the
effect of a letter of the Chief Mining Officer which emerged
after the conclusion of the assessments:
"After hearing the learned Counsel for the parties
at length, we are of the opinion that we cannot say
that the letter aforesaid does not constitute
relevant material or that on that basis, the Income-
tax officer could not have reasonably formed the
requisite belief. The letter shows that a joint
inspection was conducted in the colliery of the
respondent on January 9, 1967 by the officers of
the Mining Department in the presence of the
representatives of the assessee and according to
the opinion of officers of the Mining Department;
there was under reporting of the raising figure to
the extend indicated in the said letter. The report is
made by Government Department and that too
after conducting a Joint inspection. It gives a
reasonably specific estimate of the excessive coal
mining said to have been done by the respondent
over and above the figure disclosed by it in its
returns. Whether the facts stated in the letter are
true or not is not the concern at this stage. It may
well be that the assessee may be able to establish
that the fact stated in the said letter are not true
but that conclusion can be arrived at only after
making the necessary enquiry. At the stage of the
issuance of the notice, the only question is whether
there was relevant material, as stated above, on
which a reasonable person could have formed the
requisite belief. Since, we are unable to say that
the said letter could not have constituted the basis
for forming such a belief, it cannot be said that the
issuance of notice was invalid. Inasmuch as, as a
result of our order, the reassessment proceedings
have now to go on we do not and we ought not to
express any opinion on merits." (emphasis
supplied)
39. Learned counsel for the petitioner has sought to place reliance on
Signature Hotels (P) Ltd. V. Income Tax Officer - WARD 8(4) & Anr.,
2011 338 ITR 51 (Delhi) to submit that in this case, the Court held that the
reasons do not satisfy the requirements of Section 147 of the Act, since they
were found to be extremely scanty and vague. In Signature Hotels (supra),
the reasons recorded by the Assessing Officer for initiation of proceedings
under Section 148 read as follows:
"Information received from the office of the DIT (Inv.)-VI, New
Delhi, revealed that M/s. Signature Hotels (P) Ltd. has
introduced unaccounted money in its books of account during
the financial year 2002-03 through accommodation entry from
M/s. Swetu Stone PV for Rs. 5 lakhs.
In view of the above, I have reasons to believe that the taxable
income to the tune of Rs. 5 lakhs has escaped assessment within
the meaning of section 147 of the Income-tax Act, 1961."
40. After discussing on the legal position with regard to the obligation of
the Assessing Officer to record reasons for the formation of his belief that
income liable to tax has escaped assessment, the Division Bench observed in
respect of the reasons extracted hereinabove as follows:
"The aforesaid reasons do not satisfy the requirements of
section 147 of the Act. The reasons and the information
referred to is extremely scanty and vague. There is no reference
to any document or statement, except the annexure, which has
been quoted above. The annexure cannot be regarded as a
material or evidence that prima facie shows or establishes
nexus or link which discloses escapement of income. The
annexure is not a pointer and does not indicate escapement of
income. Further, it is apparent that the Assessing Officer did
not apply his own mind to the information and examine the
basis and material of the information. The Assessing Officer
accepted the plea on the basis of vague information in a
mechanical manner. The Commissioner also acted on the same
basis by mechanically giving his approval. The reasons
recorded reflect that the Assessing Officer did not
independently apply his mind to the information received from
the Director of Income-tax (Investigation) and arrive at a belief
whether or not any income had escaped assessment."
41. The Division Bench also examined the allegation that a company by
the name of Swetu Stone PV had invested Rs.5 lakhs by cheque towards
allotment of shares in the petitioner company. The statements of the 2
directors of the Investor Company M/s. Swetu Stone PV were also referred
to, wherein they had not named the petitioners as an entity to whom they had
provided accommodation entries.
42. We are afraid that the position in the present case is starkly different.
We have consciously set out hereinabove, the analysis and discussions found
in the reasons recorded by the Officer. The same is elaborate and discloses
the extent of business undertaken by Moral to provide accommodation
entries through a process of layering. Moral was not found at the given
address and even the other entities through whom the process of layering
was undertaken were not found. The petitioner, admittedly, had received
Rs. 90.32 crores from Moral in FY 2011-12. Thus, the decision in
Signature Hotels (supra) is not attracted in the facts of the present case.
43. Reliance has also been placed by learned counsel for the petitioner on
Principal Commissioner of Income Tax -6 v. Meenakshi Overseas Pvt.
Ltd., 395 ITR 677. Firstly, we may observe that the said decision was
rendered in an appeal preferred under Section 260 A of the Income Tax Act
by the Revenue against the decision of the ITAT. The ITAT had quashed
the assessment proceedings under Section 147/148 of the Act. This Court
had upheld the said decision. Even in this case, the reasons recorded by the
Assessing Officer for formulation of belief that income had escaped
assessment were sketchy. The same read as follows:
"Reasons for the belief that income has escaped assessment:
In this case, information has been received from the Director of
Income Tax, (Investigation) New Delhi that the Assessee has
received amount of Rs. 5,00,000/- as follows:
Beneficiary's Name Meenakshi Overseas P. Ltd.
Beneficiary Bank Name State Bank of Hyderabad
Beneficiary Bank Branch Karol Bagh
Value of entre taken 500,000
Instrument no. by which entry
taken
Date on which entry taken 31.03.2004
Name of A/c Holder of entry Shubham Electronic &
giving account Electric
Bank from which entry given SBH
Branch of entry given bank KB
A/c No. Entry giving account 50038
Information so received has been gone through. The above said
instruments are in the nature of accommodation entry, which
the Assessee has taken after paying unaccounted cash to the
accommodation entry given, who is a known entry operator as
per the report of the Investigation Wing. In view of these facts,
the alleged transaction is not the bonafide one. Therefore, I
have reason to believe that an income of Rs. 5,00,000 has
escaped assessment in the AY 2004-05 due to failure on the part
of the Assessee to disclose fully and truly all material facts
necessary for its assessment so far as this amount is concerned.
Therefore, this case is fit for issuing notice under Section 148 of
the Income Tax Act, 1961. In this case the assessment was made
under Section 143 (1) not under Section 143 (3) of the IT Act,
1961.
I am therefore, satisfied that the said income, on account of
accommodation entry worth Rs. 5,00,000 received by the
Assessee has escaped assessment and accordingly after
recording the above said reasons as laid down under the
provisions of Section 148 (2) of the Income Tax Act, 1961 under
Section 148 is being issued."
44. From the aforesaid reasons itself it would be evident that there is no
basis disclosed as to how the Assessing Officer had come to believe that the
transfer of Rs. 5 lakhs to the assessee was in the nature of accommodation
entry, and that the same had been taken by the assessee after putting
unaccounted cash to the accommodation entry provider. Since the reasons
in the present case are elaborate and betray due application of mind by the
Assessing Officer, in our view, the decision in Meenakshi Overseas (supra)
has no application to the facts of the present case.
45. It has been argued on behalf of the petitioner that since the petitioner
had fully disclosed the transactions undertaken with Moral, there is no
suppression on the part of the petitioner and that it could not be said that
income chargeable to tax had escaped assessment by reason of failure on the
part of the assessee to disclose fully and truly all material facts necessary for
the assessment in relation to the assessment year 2012-13. This submission
too has no merit in the light of the above discussion, and in the light of the
decisions cited hereinabove in the case of RDS Project Limited (supra).
Mere production before the Assessing Officer of the Account Books, or
other evidence, from which material evidence could, with due diligence,
have been discovered by the Assessing Officer, would not necessarily
amount to disclosure within the meaning of the First Proviso to Section 147.
The Assessing Officer, while framing the assessment for the assessment year
2012-13 took the assessee SIPL for its word - when it claimed that the
transactions undertaken by it with Moral were genuine sale transactions.
However, that fundamental premise is now shaken, since Moral has been
found to be a completely tainted entity embroiled in very large scale dubious
transactions of providing accommodation entries. If the transactions
undertaken by SIPL with Moral are indeed not genuine, as now reasonably
believed by the Assessing Officer, it would not be correct to say that SIPL
had disclosed fully and truly all the material facts for its assessment for the
relevant assessment year.
46. Despite the aforesaid being a gross case and despite the decision of
the Supreme Court in NRA Iron & Steel Pvt. Ltd. (supra) and our earlier
decision in RDS Project Limited (supra) being brought to the notice of
learned counsel for the petitioner, learned counsel for the petitioner
continued to press the matter at the expense of judicial time, which could
have been better utilised to deal with other pending cases. We are, therefore,
inclined to subject the petitioner to costs for unjustifiably pressing the
petition beyond a point.
47. We, accordingly, dismiss this petition with costs of Rs. 1 lakhs to be
paid to The Delhi High Court Advocates Welfare Trust. The costs shall be
paid within four weeks of the receipt of this decision. A copy of this
decision should also be communicated to the trustees of The Delhi High
Court Advocates Welfare Trust. In case, the costs are not so paid, the matter
may be brought to the notice of the Court.
48. We make it clear that no observation made by us should come in the
way of the Assessing Officer in independently framing the re-assessment
order, as the above observations have been made only to examine the
challenge to the notice issued to the petitioner under Section 148 of the Act.
49. Dismissed.
VIPIN SANGHI, J
SANJEEV NARULA, J
DECEMBER 20, 2019
