Citation Codes

Equivalent Citations

citation codes

Case Number

ITA. No. 1389/Del./2019 Assessment Year 2010-2011

Disposition

allowed

Attorney(S)

For Assessee : Shri Suresh Kumar Gupta, C.A.;
For Revenue : Shri Prakash Dubey, Sr. D.R..

Judges

Bhavnesh Saini, J.M.
B.R.R. Kumar, A.M.

Acts

ISSUE OF NOTICE U/S 148 OF THE INCOME TAX ACT, 1961
u/s 147 of the Income Tax Act.

See more information ...

Smart Summary

Judicial Summary — Bhavnesh Saini, J.M.

Factual and Procedural Background

The assessee, M/s Savita Holdings P. Ltd., a company incorporated on 22.01.1996 with two directors (Shri Vimal Bhageria and Aarti Sureka), filed its return of income on 15.10.2010 declaring total income of Rs. 62,360/-, which was processed under section 143(1). The Assessing Officer (AO) received information from the Directorate of Income Tax (Investigation) dated 12.03.2013 indicating that a search in the S.K. Jain group (alleged entry operators) revealed the assessee as a beneficiary of accommodation entries. The AO recorded reasons and issued notice under section 148 seeking reassessment for AY 2010-11.

The AO noted that the assessee's filed return showed receipt of share capital of Rs. 50 lakhs and unsecured loans aggregating Rs. 2.10 crores. Citing seized documents (annexures recovered from the S.K. Jain group), the AO concluded that the share capital and certain loans were accommodation entries linked to the S.K. Jain group and that cash had been routed through a middleman (referred to as Sh. Vimal Bhageria in AO's material). The AO made additions: Rs. 50,00,000 as unexplained share capital, Rs. 1,65,84,086 as unexplained cash credit under section 68/69A relating to loans from companies allegedly controlled by the Jain group, and Rs. 90,000 on account of commission paid to brokers.

The assessee challenged the reopening and the additions before the Commissioner of Income Tax (Appeals) who dismissed the appeal. The assessee appealed further, raising objections principally to the validity of the reasons recorded for reopening and the AO's alleged lack of independent application of mind to the material supplied by the Investigation Wing. The Tribunal heard both parties and set aside the orders below, quashing the reopening and deleting the additions; the appeal was allowed.

Legal Issues Presented

Whether the reassessment proceedings initiated under section 147 (notice under section 148) were validly initiated — specifically, whether the AO applied independent mind in recording reasons for reopening the assessment.
Whether additions treating share application money and certain unsecured loans as unexplained cash credits under sections 68/69A were justified in view of the material on record.
Whether material seized or statements recorded during search in the S.K. Jain group could be used against the assessee where such material was not supplied to the assessee or confronted with the assessee.

Arguments of the Parties

Assessee's Arguments

The AO merely reproduced conclusions from the Investigation Wing's information without independent application of mind; the reasons recorded do not demonstrate how the AO himself reached a prima facie belief that income had escaped assessment.
No evidence/material was discussed in the reasons to show payment of cash in lieu of cheques to the search group; the role of the alleged middleman was not examined or explained; specific material such as confessional statements or supporting seized documents are not referred to in the reasons.
Annexures relied upon by the AO do not support the asserted finding — for example, annexure D (cash book) actually indicates a payment of Rs. 50 lakhs by S.K. Jain group to Sh. Vimal Bhageria (contrary to the AO's assertion that cash was paid by the middleman to S.K. Jain). The AO recorded incorrect facts (e.g., misidentifying Sh. Vimal Bhageria as a middleman whereas he is a director of the assessee company).
The AO relied upon additional seized material later in the show-cause notice that were not part of the reasons recorded; improving reasons post-facto indicates lack of application of mind at the time of recording reasons.
Material obtained during search and statements recorded were not supplied to the assessee for confrontation or cross-examination; reliance on such unsupplied material is impermissible (citing Supreme Court authorities).
The reopening is thus invalid and bad in law and must be quashed; consequent additions are liable to be deleted.

Revenue's Arguments

Sufficiency of reasons for reopening is not to be examined in detail at the stage of initiation; the AO recorded reasons based on information from the Investigation Wing and applied his mind to that information, thus justifying reassessment proceedings.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Principal Commissioner Of Income Tax-6 v. Meenakshi Overseas Pvt. Ltd., 395 ITR 677 (Del.)	Reproduction of information without showing application of mind by the AO is inadequate; reasons must show how AO applied his mind to material to form belief that income escaped assessment.	The Court cited this authority for the proposition that mere reproduction of the Investigation Wing's information does not demonstrate independent application of mind; this supported the Tribunal's finding that reasons were inadequate.
RMG Polyvinyl (I) Ltd., (2017) 396 ITR 5 (Del.)	Authority cited in support of the principle that reasons for reopening must demonstrate application of mind (as relied upon by the assessee).	Relied upon to support the assessee's contention and the Tribunal's conclusion that AO did not independently apply his mind when recording reasons.
G & G Pharma India Ltd., 384 ITR 147 (Del.)	Authority cited in support of the requirement of independent application of mind by the AO when recording reasons for reopening.	Used to bolster the finding that reasons were insufficient and reopening was invalid.
Signature Hotels P. Ltd., 338 ITR 51 (Del.)	Authority cited regarding sufficiency and completeness of reasons for reopening and application of mind.	Relied upon in support of the assessee's legal position and Tribunal's decision to quash the reopening.
SFIL Stock Broking Ltd., 325 ITR 285 (Del.)	Cited as authority dealing with the requirement that reasons demonstrate AO's application of mind.	Supported the Tribunal's conclusion that the reasons were inadequate for reopening.
Sabh Infrastructure v. ACIT, 398 ITR 198 (Del.)	Cited for the settled position that reasons for reopening must be complete and self-explanatory showing application of mind.	Applied to find that the AO's reasons lacked the required independent application of mind.
Sabharwal Properties Industries Pvt. Ltd., 382 ITR 547	Cited for the proposition that if reopening is based on information/material, the same should be referenced in the reasons recorded.	Used to support the view that the AO's reliance on material not referenced in the reasons undermined the validity of reopening.
SNG Developers Ltd., 404 ITR 312 (Del.)	Cited for the proposition that incorrect or wrong facts recorded for reopening render the order invalid (departmental SLP dismissed by SC as noted).	Referred to by the assessee and noted by the Tribunal as supporting the finding of invalid reopening where incorrect facts were recorded.
Shamshad Khan, 395 ITR 265 (Del.)	Cited on procedural or evidentiary aspects relevant to reopening (as relied upon by assessee).	Used as part of the body of authorities supporting the assessee's contention that the reasons were inadequate.
Atlas Cycle Industries, 180 ITR 319 (P&H)	Cited in support of the proposition regarding invalidity of reopening based on incorrect facts (as relied upon by assessee).	Relied upon in the aggregate of authorities supporting the Tribunal's decision to quash the reassessment initiation.
Siemens Information System Ltd., 293 ITR 548 (Bom.)	Cited for similar propositions relating to reopening and adequacy of reasons.	Included among precedents relied upon in support of the assessee's case and Tribunal's conclusion.
Shri Rajiv Agarwal v. ACIT, 395 ITR 255	Holds that where AO comes across unverified information, he must take further steps and make inquiries (e.g., under sections 131/133(6)/142) before forming belief for reopening; mere non-application of mind cannot be a basis for reopening.	The Tribunal cited this decision to conclude that the AO should have made inquiries and not merely acted on unverified information; this supported quashing the reopening.
Andaman Timber Industries, 281 CTR 241 and Kishinchand Chellaram, 125 ITR 713 (SC)	Authorities cited regarding the rule that material collected during search (or statements recorded) should be supplied/confronted and that material collected at the back of the assessee cannot be used without providing opportunity for confrontation/cross-examination.	The Tribunal referred to these Supreme Court decisions to support the assessee's contention that seized material not supplied or confronted could not be used against the assessee; this contributed to the finding that reassessment was invalid insofar as it rested on such material.

Court's Reasoning and Analysis

The Tribunal reviewed the reasons recorded by the AO for reopening. It observed that the AO's reasons largely reproduced the information received from the Investigation Wing regarding the S.K. Jain group's alleged modus operandi and a list identifying beneficiaries (including the assessee).

The Tribunal examined the specific annexures (A, B, C, D) relied upon by the AO:

Annexure A: a list of companies — described by the Tribunal as unsupported and "dumb" documents without accompanying material to substantiate control or accommodation entry allegations.
Annexure B: details of cheques/POs — characterized as a routine list that does not indicate that cheques were issued in lieu of cash or that accommodation entries occurred.
Annexure C: transactional details for months not relevant to May 2009, hence not indicative of accommodation entries for the relevant period.
Annexure D: a cash book extract which, contrary to the AO's assertion, showed that the S.K. Jain group made a payment of Rs. 50 lakhs to Sh. Vimal Bhageria (and not that the middleman paid cash to S.K. Jain). This undermined the AO's factual premise that the assessee or its middleman paid cash in lieu of cheques to the S.K. Jain group.

The Tribunal noted several procedural and factual defects in the AO's approach:

The AO recorded incorrect facts (e.g., misidentifying the role of Sh. Vimal Bhageria) and relied on conclusions from the Investigation Wing without demonstrating independent reasoning or discussion of specific materials that led to the AO's belief that income had escaped assessment.
There was no showing that the AO conducted independent inquiries (such as under sections 131/133(6)/142) before recording the reasons; the AO appears to have accepted unverified information as correct without further verification.
Material recovered during the course of search or statements recorded in the S.K. Jain group's case were not supplied to the assessee, nor was the assessee given an opportunity to confront or cross-examine such material; reliance on such unsupplied materials was therefore improper.
Given that the annexures did not, on their face, implicate the assessee or provide corroborative evidence, the AO's reasons lacked the requisite completeness and self-explanatory character showing application of mind.

Applying settled legal principles (as articulated in the precedents cited by the assessee and reproduced above), the Tribunal concluded that the AO did not independently apply his mind to the material and recorded incorrect and unsupported facts in the reasons for reopening. Consequently, the reassessment proceedings were invalid.

The Tribunal expressly held that the annexures and seized material did not provide a proper basis for forming a belief that income had escaped assessment; therefore, the reopening under section 147/148 was quashed and the consequent additions were deleted.

Holding and Implications

Core Ruling: The appeal is allowed; the reopening of assessment under section 147/148 is quashed and the additions made by the AO stand deleted.

Direct consequences:

The Tribunal set aside the orders of the lower authorities and quashed the reassessment initiation for AY 2010-11.
All additions made by the AO (including Rs. 50,00,000 as unexplained share capital, Rs. 1,65,84,086 as unexplained cash credit, and Rs. 90,000 as commission) were deleted as a result of quashing the reopening.

Broader implications:

The opinion relies on established precedents emphasizing that reasons for reopening must demonstrate the AO's independent application of mind and that unverified information or seized material not supplied for confrontation cannot be the sole basis for reopening. The Tribunal did not purport to lay down a new legal principle; rather, it applied existing authorities to the facts and concluded the reassessment was invalid on those grounds.

Note: This summary is strictly confined to the materials and statements contained in the provided opinion and does not introduce facts or inferences beyond that text.

Show full summary ...

Savita Holdings Pvt. Ltd. v. Cit

Bhavnesh Saini, J.M.:— This appeal by assessee has been directed against the order of Ld. CIT(Appeals)-31, New Delhi dated 25.09.2018 for AY 2010-11, challenging the initiation of the reassessment proceedings u/s 147 of the I.T. Act and additions of Rs. 2,15,84,086/- u/s 68 of the Act holding the share application money of Rs. 50 lakhs and unsecured loans of Rs. 1,65,84,086/- as unexplained cash credit u/s 69A of the Act and addition of Rs. 90,000/- on account of commission paid to the brokers.

2. We have heard Ld. Representatives of both the parties and perused the material on record.

3. Briefly the facts of the case are that assessee is a company which was incorporated on 22.01.1996 under the Companies Act having its two Directors namely Shri Vimal Bhageria and Aarti Sureka. The assessee company filed its return of income on 15.10.2010 for assessment year under appeal declaring income at Rs. 62,360/- which was processed u/s 143(1) of the Act on 17.02.2012. The AO received information from DIT(Inv.) dated 12.03.2013 mentioning therein that a search operation was carried out in the case of Shri S.K. Jain group of cases, wherein after intensive and extensive enquiry and examination of the documents seized during the course of search, it has been noticed that the said group is involved in providing accommodation entries and the name of the assessee company also figures in the list as one of the beneficiaries of the accommodation entries. The AO recorded reasons for reopening of the assessment and issue a notice u/s 148 of the Act. The assessee in response to the same submitted before AO that return of income filed originally may be treated as return having been filed in response to notice u/s 148 of the Act. The AO noted that the return of income filed by the assessee shows that assessee has received share capital of Rs. 50 lakhs and unsecured loans of Rs. 2,10,84,386/- in assessment year under appeal. The AO referred to Annexure B in the assessment order which was recovered from Jain Brothers to show that on 04.05.2009 assessee company has received share capital of Rs. 25 lakhs each from two companies namely Euro Asia Mercantile Pvt. Ltd. and AD Fin Capital Services P. Ltd. through account payee cheques. The AO noted that on the basis of the seized document it was noticed that Jain Brothers have received Rs. 50 lakhs in cash from intermediary Sh. Vimal Bhageria for getting the said entry. The AO also referred to Annexure D which was also found from Jain Brothers which is extract from cash book forming part of seized material to show that cash receipt by the accommodation intermediary (Sh. Vimal Bhageria) of Rs. 50 lakhs from 01.05.2009 to 30.05.2009. The AO referred to modus operandi of Jain Brothers to provide accommodation entry in the assessment order and referred to order of the Ld. CIT(A) in their case the AO issued show cause notice to the assessee to explain the above share capital money received.

4. The assessee filed a reply before AO which is reproduced in the assessment order in which assessee has briefly explained that it has not paid any cash to any such person. The assessee submitted copy of the ITR, computation, bank statements, master data from ROC, board resolution and balance sheet of the above mentioned investors to show that assessee has received genuine share capital money from these two companies. The evidences filed by the assessee have not been controverted. The AO, however, did not accept the contention of the assessee and made addition of Rs. 50 lakhs on account of unexplained share capital received from the above two companies. The AO also noted that in assessment year under appeal assessee has also received other credits on account of unsecured loans of Rs. 2.10 crores the assessee company in support of the same filed their confirmation, ITR, bank statements. The AO, however, noted that assessee has received loan of Rs. 1,65,84,086/- from three companies namely M/s Transnational Growth Fund Ltd., M/s Solomon Holdings P. Ltd. and M/s RKG Finvest Ltd. which are the companies controlled by Jain Brothers. The AO, therefore, treated the sum of Rs. 1,65,84,086/- as unexplained cash credit u/s 68 of the Act and made the addition accordingly. The AO also made addition of Rs. 90,000/- on account of commission paid for procuring the accommodation entries.

5. The assessee challenged the reopening of the assessment as well as above additions before Ld. CIT(A). Detailed submission of the assessee is reproduced in the appellate order, however, Ld. CIT(A) dismiss the appeal of the assessee.

6. Ld. Counsel for assessee referred to PB 34 which is copy of the reasons recorded for initiation of the reassessment proceedings. The same reads as under:

“Name of the assessee : M/s Savita Holdings P. Ltd. AY 2010-11

PAN : AABCS3394P

ASSESSMENT YEAR : 2010-11

REASONS FOR ISSUE OF NOTICE U/S 148 OF THE INCOME TAX ACT, 1961

The return of income for the AY 2009-10 has been filed by the assessee company on 15.10.2010 declaring total income amounting to Rs. 62,360/-. The same was processed u/s 143(1) on 03.11.2010. No assessment u/s 143(3) for the AY 2010-11 has been made in this case.

In this case information has been shared by DIT (Investigation)-II (letter flagged as Annexure A) on the basis of search in the case of Sh. Surendra Kr. Jain group of cases (entry operator) New Delhi that during the FY 2009-10. It is informed that the aforementioned assessee has introduced its own money by way of taking bogus accommodation entries provided by Sh. S.K. Jain group of cases (entry operator) the details of accommodation entry amount received as beneficiary is given as under as provided by investigation wing:

S. No. Beneficiaries Name of the Entry Provider Amount Total Amount 1. Savita Holding P. Ltd. Sh. Surendra Kumar Jain Group 50,00,000/- 50,00,000/

I have perused the balance sheet of the assessee for the year ending 31.03.2010 and 31.03.2009 it is revealed therein that issued subscribed and paid up capital has increased by Rs. 50 lacs.

In this regard I have also tallied the above with information details of the cheques/PO received by the above company, the amount the issuing company, the receipt company, middleman bank etc. as tabulated/reproduced below which are found totally with fresh share capital received as detailed below to.

S. No. From company name To Company name Name of the issuing bank Chq./RT GS/PO Ch./Date Amount Name of the Middlemen 1. Euro Asia Mercantile P. Ltd. Savita Holding P. Ltd. Axis Ch. No. 192357 04.05.09 2500000/- Vimal Bhageria 2. AD Fin Capital Services P. Ltd. Savita Holding P. Ltd. Axis Ch. No. 0125 04.05.09 2500000/- Vimal Bhageria

Then again it is seen that the two companies from whom the amount were received are listed as paper companies controlled by Sh. S.K. Jain group.

Thus, in view of above, I have reason to believe that the income pertaining to the AY 2010-11 has escaped assessment to the extent of Rs. 50,00,000/-. The escapement of income has been clearly on account of failure on the part of the assessee to truly and fully disclose all material facts necessary for assessment. The assessment is proposed to be made for the time and case has not been completed u/s 143(3) earlier. Thus, it is a fit case for initiation of proceeding u/s 147 of the Income Tax Act.”

7. Ld. Counsel for assessee submitted that the conclusion of the AO is the conclusion drawn by the Investigation Wing. But the AO in absence of any application of mind to the relevant information was in no position to reach a belief himself that the income has escaped assessment, independent of the conclusion of Investigation Wing. The AO does not discuss how the prima facie belief of accommodation entry is reached when no evidence/material regarding the payment of cash in lieu of cheques to the search group is discussed. The role of middleman is not discussed and nor is there any indication that he was examined by the Investigation Wing or the AO. The conclusion of the AO is not supported by any evidence or material on record. The reasons recorded do not refer evidence or any confessional statement of any entry provider, cash payment by assessee/payment of commission etc. Non disclosure of specific material in the process of formation of prima facie belief shows that either the material referred in the information of Investigation Wing was not available to the AO or if it was there, the same have not been considered by the AO. He has relied upon judgment of the Hon'ble Delhi High Court in the case of Principal Commissioner Of Income Tax-6 v. Meenakshi Overseas Pvt. Ltd., 395 ITR 677 (Del.), wherein it was held that “reproduction of information without showing how the material referred therein does not show application of mind by the AO in absence of any specific discussion on the material on the basis of which independent prima facie belief is reached that income has escaped assessment”. Ld. Counsel for the assessee in support of the proposition of law regarding non-application of the mind by the AO on the reasons recorded relied upon the judgment of Delhi High Court in the cases of RMG Polyvinyl (I) Ltd., (2017) 396 ITR 5 (Del.), G & G Pharma India Ltd., 384 ITR 147 (Del.), Signature Hotels P. Ltd., 338 ITR 51 (Del.) and SFIL Stock Broking Ltd., 325 ITR 285.

8. Ld. Counsel for assessee submitted that it is settled position of law that the reasons for reopening of the assessment must be complete and a self explanatory demonstration the application of mind by the AO of the relevant material in his possession. In support of his contention, he has relied upon the judgment of Delhi High Court in the case of Sabh Infrastructure v. ACIT, 398 ITR 198 (Del.). Lack of independent application of mind at the stage of recording reasons is also evidence from the fact that AO himself has tried during reassessment proceedings to support the conclusion of accommodation entries by relying upon various additional seized material in the show-cause notice. The additional materials are handwritten cash book, where cash transactions are recorded but the same are not found recorded in the regular books of the account of the searched persons. There was no supporting material to any of the seized paper. The AO in order to improve the reasons relied upon additional materials later on which are not part of the reasons recorded. He has submitted that if the reopening is based on some information or material, same should have the reference in the reasons recorded which will have to be the basis for reopening of the assessment. He has relied upon the judgment of Delhi High Court in the case of Sabharwal Properties Industries Pvt. Ltd., 382 ITR 547, etc. Ld. Counsel for assessee further submitted that non-application of the mind by the AO can also be found from the fact that in para 20 at page 51 of the show-cause notice the AO alleged that the amount of Rs. 50 lakhs was received by S.K. Jain group from the middleman Shri Vimal Bhageria in lieu of cheques of Rs. 50 lakhs accepted by the assessee company as accommodation entry. The allegation was found supported by annexure D (PB 69-70). On annexure D (PB 70) is the cash book marked A-23 and the perusal of this reveals that contrary to what the AO stated, there is a payment of Rs. 50 lakhs shown to have been made as per the same document by S.K. Jain group to Sh. Vimal Bhageria during the period 01.05.2009 to 30.05.2009. Therefore, the ground taken by the AO in the reasons that cash is paid by middleman of assessee to Sh. S.K. Jain is not supported by the seized material. The AO recorded incorrect facts in the reasons for giving cash to S.K. Jain group of cases for taking accommodation entry. He has submitted that even the name of middleman is incorrectly recorded because Sh. Vimal Bhageria is one of the Director of the assessee company. Ld. Counsel for assessee, therefore, submitted that since incorrect and wrong facts are recorded in the reopening of the assessment, therefore, it is invalid and bad in law. In support of his contention, he has relied upon the judgment of Delhi High Court in the case of SNG Developers Ltd., 404 ITR 312 (Del.) in which departmental SLP has been dismissed by the Supreme Court vide order dated 09.02.2018. He has also relied upon the judgment of Delhi High Court in the case of Shamshad Khan, 395 ITR 265 (Del.), judgment of (P&H) in the case of Atlas Cycle Industries, 180 ITR 319 and judgment of Bombay High Court in the case of Siemens Information System Ltd., 293 ITR 548. None of the annexure referred by the AO in the assessment order have any reference in the reasons for reopening of the assessment. The AO in the show-cause notice dated 23.02.2016 (PB 55) has stated that as per annexure A seized from S.K. Jain group shows that name of the assessee appears on this document having taken accommodation entry amounting to Rs. 17.05 crores from searched group. If such amount is correct, there were no reasons for the AO to mention only Rs. 50 lakhs in the reasons. Thus, the AO did not apply his independent mind to the information received from the Investigation Wing which has resulted into that sanction u/s 151 is also invalid. The AO did not take any action on the information received from Investigation Wing for about 2 years and did not verify the same and just repeated the same for the purpose of reopening of the assessment. He has relied upon the judgment of Hon'ble Delhi High Court in the case of Shri Rajiv Agarwal v. ACIT, 395 ITR 255 in which it was held that “even in cases, where the AO comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and, if such material indicates that income of an Assessee has escaped assessment, form a belief that income of the assessee has escaped assessment. There is non-application of mind by the AO could not be said to have reason to believe as to justify reopening of the assessment”. The AO could have made enquiries prior to recording the reasons by undertaking enquiries u/s 131/133(6)/142 of the Act. But the AO merely acted on wrong and incorrect information. Ld. Counsel for assessee, therefore, submitted that reopening of the assessment is invalid and bad in law. He has further submitted that the AO relied upon material collected during the course of search in the case of S.K. Jain group and Investigation Wing have recorded statement of some persons in their search by confronting the incriminating material found during the course of search. The AO, however, did not provide copies of such material for confrontation of the assessee and no right of cross-examination have been provided to the assessee, therefore, such material collected at the back of the assessee cannot be used in evidence against the assessee. In support of his contention, he has relied upon the judgment of the Supreme Court in the case of Andaman Timber Industries, 281 CTR 241 and Kishinchand Chellaram 125 ITR 713 (SC). Ld. Counsel for the assessee, therefore, submitted that reopening of the assessment is bad in law and is liable to be quashed.

9. On the other hand, Ld. DR relied upon the orders of the authorities below and submitted that sufficiency of the reasons are not to be looked into at the stage of reopening of the assessment. The AO recorded reasons for reopening of the assessment based on information received from Investigation Wing and has applied his mind to such information. Therefore, reopening of the assessment is justified.

10. We have considered the rival submission. It is well settled law that validity of the reassessment proceedings is to be determined with reference to the reasons recorded for reopening of the assessment. The copy of the reasons recorded for reopening of the assessment is reproduced above. It is admitted fact that assessee filed original return of income which was processed u/s 143(1). The AO later on received information from Investigation Wing that search was carried out in the case of S.K. Jain group of cases, wherein after detailed enquiry and examination of document seized during the course of search, it was found that the said persons have given accommodation entries to the assessee as per the list in which assessee is shown as one of the beneficiaries. The AO referred to annexure B and D and other material in the assessment order for justifying reopening of the assessment in the matter. The AO as per seized material noted that assessee has received accommodation entry of Rs. 50 lakhs from two parties in which intermediary was Sh. Vimal Bhageria. The AO recorded incorrect fact that Sh. Vimal Bhageria was intermediary because at the first page of the assessment order AO has mentioned that Sh. Vimal Bhageria is one of the Director of the assessee company. The AO also on the basis of the seized document found that Jain Brothers had received Rs. 50 lakhs in cash from Sh. Vimal Bhageria and referred to annexure D in the reassessment order, copy of which is also filed at page 69 and 70 of the Paper Book. Annexure D would reveal that cash is received by the accommodation intermediary (Sh. Vimal Bhageria). PB 70 is also annexure D page 1 according to which Rs. 50 lakhs shown to have been made by S.K. Jain group to Sh. Vimal Bhageria during period from 01.05.2009 to 30.05.2009. So the ground taken by the AO that assessee has paid cash in lieu of cheque of Rs. 50 lakhs accepted from Sh. S.K. Jain has not been supported by any material. Rather a contrary fact has been recorded in the seized annexure D (PB 69-70) that S.K. Jain group has paid cash to Sh. Vimal Bhageria. PB 59 to 64 is annexure A, PB 65 to 66 is annexure B and PB 67 to 68 is annexure C and PB 69 to 70 is annexure D which according to AO would support the allegation of accommodation entry of Rs. 50 lakhs received by assessee from the companies controlled by Sh. S.K. Jain group. However, these entries found during the course of search in the case of S.K. Jain are not for any help to the AO or the Revenue Department to form a belief of escapement of income. These annexure will show that AO was not correct to form his belief on such annexure which are totally dumb documents and do not provide anything of providing accommodation entries. Annexure A is list of the companies and there is no supporting material to the same or it is controlled by somebody else. Annexure B is again details of cheque issued by various companies on 01.05.2009 to 11.05.2019 which is a routine list and nothing more. It would also not indicate that cheques have been issued in lieu of the cash. Annexure C is again details of transaction in the month of March 2010 and December 2009. These details do not pertain to the period of the month of May, 2009. It does not provide of any details for accommodation entries. Annexure D is differently as mentioned above in which it is mentioned that cash payment of Rs. 50 lakhs is paid to middleman and not that middleman has paid any cash payment to S.K. Jain group of cases. The AO subsequently in the show-cause notice dated 23.02.2016 has mentioned that assessee has received accommodation entries of Rs. 17.05 crores from the searched group which fact is also incorrect. Shri Vimal Bhageria is not the middleman as mentioned in the reasons. He is one of the director of the assessee company. The AO in the assessment order has specifically mentioned that the return of income filed originally u/s 139(1) shows assessee has received share capital of Rs. 50 lakhs and unsecured loans of Rs. 2.10 crores in assessment year under appeal. Thus, there was no reason for the AO to mention in the reasons recorded for reopening of the assessment that there is an escapement of income on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. The above facts on record clearly show that during the course of search no specific material or evidence was found against the assessee for receiving any accommodation entry from S.K. Jain group of cases. The AO did not refer to any material found during the course of search against the assessee in the reasons recorded for reopening of the assessment. The AO believed the information received from Investigation Wing that assessee has received accommodation entry but all the annexure seized during the course of search from S.K. Jain group of cases as discussed above did not implicate the assessee of receiving any accommodation entry. No material was found during the course of search as to how Sh. S.K. Jain group was controlling the investor companies or the companies provided loan to the assessee. Such fact is also not corroborated by any evidence or material, if found during the course of search. Thus, the AO recorded incorrect and wrong facts in the reasons recorded for reopening of the assessment. The AO independently did not apply his mind to the information received from Investigation Wing and merely believed the same to be correct for the purpose of reopening of the assessment despite no specific material was found during the course of search against the assessee company. Whatever material was recovered during the course of search or any statement recorded during search in the case of S.K. Jain group of cases, such material was never supplied to assessee or confronted or given any right of cross examination to the assessee. Therefore, such material cannot be used against the assessee. Considering the above discussion, it is clear that AO has mentioned wrong and incorrect facts in the reasons recorded for reopening of the assessment and did not apply his mind to the information received from Investigation Wing. Thus, the reopening of the assessment is invalid and bad in law and is liable to be quashed. The decisions relied upon by Ld. Counsel for assessee support our findings. In this view of the matter, we set aside the orders of the authorities below and quash the reopening of the assessment. Resultantly all additions stand deleted.

11. The Ld. Representatives of both the parties have also argued on merits in which Ld. Counsel for assessee argued that whatever documentary evidence was filed on record for the purpose of explaining the share application money and loans, no investigation has been made by the AO. Thus, in principle addition is otherwise wholly unjustified. Since, we have quashed the reopening of the assessment, therefore, the issue of merit is left with academic discussion only and, as such, we do not propose to decide the same at the stage.

12. In view of the above, the appeal of assessee is allowed.

Savita Holdings Pvt. Ltd. v. Cit

Judicial Summary — Bhavnesh Saini, J.M.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments

Revenue's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Savita Holdings Pvt. Ltd. v. Cit

Comments

We use cookies to improve your experience