Income Tax Appellate Tribunal – Delhi
Vijayshree Food Products P.Ltd, … vs Acit, Central Circle-30, New … on 6 December, 2021 IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : G : NEW DELHI
(Through Virtual Hearing)
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER
AND
MS SUCHITRA KAMBLE, JUDICIAL MEMBER
ITA No.587/Del/2019
Assessment Year: 2014-15
Vijayshree Food Products P. Ltd., Vs. ACIT,
C/o Ravi Gupta, Advocate, Central Circle-30,
E-6A, Kailash Colony, New Delhi.
New Delhi.
PAN: AACCV4721C
(Appellant) (Respondent)
Assessee by : Shri P.C. Yadav, Advocate
Revenue by : Shri Prakash Dubey, Sr.DR
Date of Hearing : 09.09.2021
Date of Pronouncement : 06.12.2021
ORDER
PER R.K. PANDA, AM:
This appeal filed by the assessee is directed against the order dated 28th
December, 2018 of the CIT(A)-30, New Delhi, relating to Assessment Year
2014-15.
2. Facts of the case, in brief, are that the assessee is a company engaged in the
business of manufacturing and export of tobacco products. It filed its return of
income on 30th September, 2014 declaring the loss of Rs.18,78,467/-. The return
was processed u/s 143(1) of the Act on 26th November, 2014 at the returned
ITA No.587/Del/2019
income. Subsequently, the AO reopened the assessment as per the provisions of
section 147 of the Act by recording the following reasons:-
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3. In response to the notice u/s 148 of the Act, the assessee filed its return of
income on 18th April, 2017 declaring the loss of Rs.18,78,467/-. During the
course of assessment proceedings, the AO noted that the assessee company
during the year under consideration has received share application money from
the following companies:-
S.No. Name of the company Address Share application
money
1. M/s Binapani Merchandise 7, Ganesh Chandra 1,50,00,000
Pvt. Ltd. Avenue, 5th Floor, Kolkata
2. M/s Kansabati Tradecom 7, Ganesh Chandra 40,00,000
Pvt. Ltd. Avenue, 5th Floor, Kolkata
Total 1,90,00,000
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3.1 He noted that during the search and post search and survey proceedings in
Kuber Group of companies, the details relating to companies giving
accommodation entries of share application money, share premium, share capital
and unsecured loan came to light. He observed that during the search and seizure
operation u/s 132 of the Act on 9th October, 2014 in the Kuber Group of
Companies, statement of Shri Mul Chand Malu was recorded u/s 132(4) of the
Act in which he has offered to declare undisclosed income of Rs.100 crore of the
Kuber Group of companies and their directors under specific head of share
capital/share premium/ capital formation out of total undisclosed income of
Rs.150 crore. Subsequently, the statement of Shri Mul Chand Malu was again
recorded on oath u/s 131 of the Act on 02.01.2015 wherein he reaffirmed his
declaration of undisclosed income of Rs.100 crore towards share application
money/share premium/ share capital and unsecured loan. In view of the above
and considering the fact that during post search investigation, the summons
issued u/s 131 of the Act to various accommodation entry giving entities
remained ucomplied with, the AO asked the assessee to furnish the details of
share application money, share premium and unsecured loan received from the
companies and prove their credit worthiness and genuineness of the transactions
u/s 68 of the IT Act. The AO further noted that during assessment proceedings in
various Kuber Group of companies, enquiries were conducted by issuing
commission u/s 131(1)(d) of the Act and information was gathered from the
Investigation Wing, Kolkata. As per the information received, M/s Binapani
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Merchandise Pvt. Ltd. is one of the many paper/jamakharchi companies used in
providing accommodation entries by Mr. Vikas Kumar Agarwal. In his
statement, Shri Vikas Kumar Agarwal had stated that his main source of income
is from commission for providing accommodation entries. He had further stated
that the companies managed and controlled by him are basically paper companies
without having any actual business and thereby don’t require any actual fund.
The main motive of formation of these companies was to provide accommodation
entries to various beneficiaries in lieu of commission income. Similarly in the
case of M/s Kansabati Tradecom Pvt. Ltd., operated by Mr. Devesh Upadhyaya,
the AO noted that Shri Devesh Upadhyaya had also given similar statement.
4. The AO, therefore, confronted the assessee regarding the above findings
and asked the assessee to produce the directors/key persons who are involved in
managing the affairs of the companies to prove the genuineness of the share
application money received along with the documentary evidences and also asked
the assessee to explain as to why the funds credited in the books of account of the
company in the form of share application money may not be treated as
unexplained credits and charge to income-tax.
5. In response to the same, the assessee furnished the details in the form of
copies of share application forms, confirmations, bank statement, ITR
acknowledgement and annual financial statement of respective applicants.
However, the assessee failed to produce the directors for examination of the AO.
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Since there was persistent non-compliance of the assessee to produce the
directors of the assessee company or the directors of the investor companies, the
AO, relying on various decisions held that the assessee failed to prove the
identity and credit worthiness of the investor companies and the genuineness of
the transaction. Invoking the provisions of section 68, the AO made addition of
Rs.1,90,00,000/- to the total income of the assessee.
6. Before the CIT(A), the assessee, apart from challenging the addition on
merit, challenged the validity of reassessment proceedings. The assessee has also
made elaborate submissions. The ld. CIT(A) called for a remand report from the
AO. After considering the submissions of the assessee, remand report of the AO
and the rejoinder of the assessee to such remand report, the ld. CIT(A) upheld the
validity of the reassessment proceedings and also upheld the addition on merit.
7. Aggrieved with such order of the CIT(A), the assessee is in appeal before
the Tribunal by raising the following grounds:-
“1. On the facts and in the circumstances of the case Ld. CIT (A) New
Delhi New Delhi has erred both on facts and in law in upholding the
impugned order passed by the respondent illegally, violating the principles
of natural justice, without fair and objective application of mind to the facts
of the case and the law applicable and without being guided by the binding
decisions of courts and tribunals and hence liable to be set aside and
quashed and declared non est. in law.
2. On the facts and circumstances of the case, the learned Ld. CIT (A)
New Delhi has erred, both on facts and in law, in sustaining the assessment
of the appellant at income of Rs.17,121,533/- as against the income of
(Rs.1,878,467/-) declared by the appellant.
3. On the facts and circumstances of the case, the learned Ld. CIT (A)
New Delhi has erred, both on facts and in law, in sustaining the assessment
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that could not have been re-opened u/s 147/148 as no valid reasons have
been recorded by the Assessing Officer to establish any satisfaction on his
part that any income belonging to the appellant has escaped assessment.
4. On the facts and in the circumstances of the case Ld. CIT (A) New
Delhi has erred both on facts and in law , in sustaining the action of AO as
no incriminating material whatsoever was found/unearthed as a result of
search.
5. On the facts and circumstances of the case, the learned Ld. CIT (A)
New Delhi has erred, both on facts and in law, in sustaining the action of
AO in initiation of proceedings u/s 147, of the IT Act, solely on the basis
Unverified/ unratified/unsubstantiated/unconfirmed statement of Shri Mul
Chand Malu.
6. That the Ld. CIT(A) has erred, both on facts and in law, in
sustaining the addition of Rs. 19,00,000/- u/s 68 on account of share
capital/share premium without appreciating the facts of the case.
7. On the facts and circumstances of the case, the learned Ld. CIT (A)
New Delhi has erred, both on facts and in law, in sustaining the additions of
Rs. 1,90,00,000/- despite the fact that the assessee has discharged the onus
cast upon it under section 68 of the Income-tax Act.
8. On the facts and circumstances of the case, Ld. CIT (A) New Delhi
has erred, both on facts and in law, in sustaining the said addition arbitrarily
rejecting the explanation and evidences brought on record by the appellant.
9. On the facts and in the circumstances of the case Ld. CIT (A) New
Delhi has erred both on facts and in law, in sustaining the action of AO
violating the principle of natural justice by not providing opportunity for
cross- examination of persons, whose statements have been relied upon by
the AO, in spite of specific request made by the appellant in assessment
proceedings as well as before CIT(A).
10. On the facts and circumstances of the case, the learned Ld. CIT (A)
New Delhi has erred, both on facts and in law, in sustaining the action of
AO. As the proceedings initiated u/s 147/148 are invalid, the proceedings
should have been initiated u/s 153C.
11.That the provisions of sections 234A, 234B and 234C of the Act are not
at all applicable.
12.That the impugned appeal order is arbitrary, illegal, bad in law and in
violation of rudimentary principles of contemporary jurisprudence.
13.The appellant craves leave to add, amend or alter any of the grounds of
appeal.”
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8. Grounds of appeal No.1, 12 and 13 being general in nature are dismissed.
Ground of appeal No.11 being consequential in nature is dismissed. So far as the
other grounds are concerned, the ld. Counsel for the assessee strongly challenged
the order of ld.CIT(A). He drew the attention of the Bench to the following date
chart:-
DATE EVENT Remarks
09.12.2013 Statement of one Vikash Aggarwal was Copy of the statement is at
recorded by Calcuta investigation wing Page no-52 of the PB
30.09.2014 Return of Income for the impugned year Admitted fact
declaring loss was filed by assessee
09.10.2014 A search was conducted in Kuber Group of Admitted fact
Companies
24.01.2014 Statement of Devesh Upadhya was Page No-82 of the PB
recorded by Kolkota Wing
30.12.2014 Statement of Devesh Upadhya was See Page NO-74 of the PB
recorded by the investigation wing of
Kolkota
02.03.2015 Statement of Devesh Upadhya was See Page NO-67 & 70 of
recorded again the PB
01.05.2015 Statement of Devesh Upadhya was See Page NO-58 of the PB
recorded again
10.11.2016 Commission under section 131(1)(d) of the See Page no-48 of the PB
Act was issued by Delhi
31.03.2017 Reasons for impugned year was recorded Page NO-3 & 4 of the PB
31.03.2017 CIT granted Sanction Pg no-6 of the PB
31.03.2017 Notice u/s 148 was issued Admitted fact in Order of
Asst
20.04.2017 Assessee filed objections for reassessment Page no-7 of PB
21.04.2017 Order disposing the objection of assessee See Page No-17 of PB
12.05.2017 Assessment order was passed See assessment order
8.1 He submitted that the AO while recording reasons has made very wrong
observations and hence it can be inferred that there was no tangible material with
the AO for having reasons vis-a-vis escapement of income. He submitted that the
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information on the basis of which reasons were conceived was not gathered in
search or post search enquiries which is evident from the date of events
mentioned above. He submitted that search date was 09.10.2014 & commission
u/s 131(1)(d) was issued on 10.11.2016 and statements of the person alleged to
have control over the investor companies were much prior to the date of search
and issuance of commission. The statements were recorded on 9-12-2013,
24.01.2014, 30.12.2014, 02.03.2015 & 01.05.2015 and commission was issued
on 10.11.2016. Therefore, the averment of the AO that during search and post
search proceedings ,information relating to entities providing accommodation
entries of share application money, share premium, share capital and unsecured
loans to Kuber Group entities came to light is factually incorrect.
8.2 The ld. Counsel for the assessee submitted that the AO has alleged that M/s
Binapani Mercentile (one of the investor) was a jama kharchi company.
However, this fact is contrary to the report of commission. Referring to page 48
of the paper book, he submitted that the Calcutta wing has mentioned the name of
Jama Kharchi companies and the name of BINAPANI was not there in that list.
Further perusal of Page No- 50 would show that name of BINAPANI was at
serial number-7 and covered in the category of those companies whose address
were not traceable. Therefore the observation of the AO that BINAPANI was
Jamakharchi Company is factually incorrect and contrary to the report of
investigation wing which shows that the AO has not applied his mind at all.
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8.3 Ld. Counsel for the assessee referring to Q 14 at Paper Book page 54,
submitted that Mr Vikash Aggarwal in his statement, which is part of the
assessment order as Annexure B, has provided accommodation share capital to
some other companies and that too in some other Assessment years and not in
AY 2014-15. He submitted that the AO in the reasons recorded has admitted in
last para at 1st page of the reasons recorded that statements of Vikash Kumar
Aggarwal were recorded during previous enquires/ surveys/ searches and not in
connection with the present commission issued in Kuber Group. Therefore it is
legally impermissible to entrap the future transactions without there being any
happening/ material.
8.4 Ld. Counsel for the assessee submitted that the AO has next alleged that
BINAPANI was controlled by Vikash Aggarwal. However the statement of
Vikash Aggarwal neither reveal the name of the investor company nor reveal the
name of assessee company anywhere. In fact the statement provides name of
other two companies who has taken bogus share capital which is evident from Q.
No. 7 at para 51 of the paper book and Question No.10 at page 53 of the paper
book.
8.5 So far as amount received from M/s Kansabati Tradecome Pvt Ltd is
concerned, he submitted that the AO in the reasons recorded has alleged that M/s
Kansabati Tradecome Pvt Ltd is one of the Paper Company of Devesh Upadhaya
and has provided share application money to assessee. However, the same is not
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correct. Referring to page number 78-79 of PB, question number 7 & 8, he
submitted that Kansabati has provided bogus LTCG in that period and not bogus
share capital to any one. Therefore the AO’s observations for a future transaction
is wrong and contrary to the records. He accordingly submitted that all above
facts prove beyond doubt that AO has mentioned wrong facts in the reasons
recorded and has also not examined the so called stale information independently
before forming a belief that income of assessee has escaped assessment.
8.6 Referring to the following decisions, he submitted that if the AO
mentioned wrong facts which are contrary to the records, then assumption of
jurisdiction is bad in law:-
i. CIT Vs. Atlas Cycle Industries 180 ITR 319( P&H)
ii. Pr. CIT Vs. SNG Developers Ltd. 404 ITR 312(Del)
iii. Shamshad Khan vs. ACIT 395 ITR 265;(Del)
iv. Siemens Information System Ltd. Vs. ACIT 293 ITR 548.(Bom)
v. CIT Vs Rainee Singh 330 ITR 417(Del)
vi. VSR Enterprises- ITA No 1856/Del/2016- dated 17.02.2021.
vii. Shri Natrajan Monie- ITA NO 1817/Del/2017- dated-07.12.2020.
viii. SJM international in ITA No-3762/Del/2018 dated 09.08.2021
8.7 Referring to the following decisions, he submitted that the expression
“reason” means cause or justification. It has to be based upon some material.
Further the expression used in 147 is “has reason to believe” which does not
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mean “has reason to suspect”. For the above proposition, he relied on the
following judgments:-
(i) Ganga Prasad Maheswari Vs CIT, 139 ITR 1043(AII); and
(ii) Indian Oil Corporation v. ITO (1986) 159 ITR 956 (SC).
9. In his next plank of arguments, the ld. Counsel for the assessee submitted
that there is no independent application of mind by the AO. He submitted that
the AO must apply his mind to the information coming from outside and then
entertain a belief that income has escaped assessment. Referring to the reasons
recorded, he submitted that the AO has solely relied on stale information and
hence it is case of borrowed satisfaction. Otherwise the AO would not have made
incorrect observations and relied on the past events to assume the sanctity of
future transactions. For the above proposition, he relied on the following
decisions:-
(a) G&G Pharma- 384 ITR 147(Del); &
(b) CIT v. Smt. Pramjit Kaur (2009) 311 ITR 38 (P&H).
10. The ld. Counsel for the assessee in yet another plank of argument submitted
that the date of reasons recorded, the date of sanction and the date of issuance of
notice coupled with factual inaccuracies committed by the AO would prove that
ld. CIT has granted the approval in a mechanical manner. He submitted that had
the CIT perused the stale material, then he would have certainly asked the AO to
correct the mistakes committed by him in the reasons recorded. For the above
proposition of mechanical approval, he relied on the following decisions:-
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(A) Central India Electric Supply Co. Ltd vs . ITO (2011) 333 ITR 237 (Del.):
51 DTR 51 (Del.);
(B) German Remedies Ltd. v. DCIT (2006) 287 ITR 494 (Bom.);
(C) United Electrical Co. P. Ltd. v. CIT (2002) 258 ITR 317 (Del.);
(D) CIT Vs Goyanka Lime 237 Taxman 378(SC);
(E). CIT Vs N.C. Cables, 98 CCH 18 (Del); and
(F) Chuga Mai Rajpal, 79 ITR 603(SC) Larger Bench.
11. Ld. Counsel for the assessee submitted that perusal of sequence of events
would prove beyond doubt that AO has passed the final order of assessment
within four weeks of the order of disposing the objection of assessee. This is
another ground for annulling the assessment. He submitted that in the following
judgments the various Benches of the ITAT and Hon’ble Bombay High Court has
held that if the AO has not waited for four weeks after the passing of order on the
objections of the assessee then action of 148 is not tenable.
a. Bharat Jyanti Lai Shah Vs UOI 378 ITR 596(Bom)
b. Kamlesh Goel Vs ITO – ITA NO-5730/2Q17 dated 30.08.2018
c. Meta Plast Engeineering Vs ITO -ITA No-5780/Del/2014
d. FGR Logistics Vs ACIT ITA No-4560/Del/2019- dated 01.01.2021
12. He submitted that the assessee further seeks to rely on the judgment of the
coordinate bench in Kuber Group wherein the ITAT has quashed the assessment
framed under section 147, observing that AO failed to provide the opportunity to
cross examine Mr Vikash Kumar Aggarwal & Devesh Upadhay. Referring to the
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decision of the Tribunal in the case of Kuber Khanpan & Kuber Products, vide
ITA No-580 & 322, order dated 21.10.2019, he submitted that in these cases also
the AO was same, date of recording of reasons was same, date of issuance of
notice u/s 148 was same and the persons whose statements were relied were also
same.
13. The ld. Counsel for the assessee submitted that third party statements
cannot be relied upon for assuming jurisdiction. He submitted that during
assessment proceedings the AO has relied on the statement of Mr. Vikash &
Devesh without providing opportunity to cross examine them. During remand
proceedings the AO, in the remand report has said that he has framed the
assessment on the basis of statement of Shri Mul Chand Malu. He submitted that
Mr Malu was neither the Director nor the employee of the assessee Company and
hence all these statements cannot be relied upon. He submitted that the Tribunal
in the case of Kuber Khadyan in ITA No.4223/Del/2018 has held that statement
of third party cannot be relied upon for framing assessment u/s 153C. Though the
present case is under section 147, however, the ratio laid down would apply
mutatis mutandis in the present case.
14. So far as merits of the case is concerned, he submitted that assessee, in
order to discharge his burden, has filed the following details as mentioned in the
order of assessment at Para 6.6.
a. ITR of the investor companies
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b. Share application forms
c. Confirmations
d. Bank Statements.
e. MCA Data
14.1 He submitted that the AO discarded the above evidence without bringing
on any material on record and without providing any opportunity to cross
examine the so called entry providers and relying on the stale informations which
was related to past events and made the additions in an arbitrary and capricious
manner. Referring to the following decisions, he submitted that it has been held
that no addition can be made on the basis of statements of third party if an
opportunity to cross examination has not been granted.
a) CIT Vs Sunrise Tools (Dei) 88 CCH 26
b) Brij Bhusan Singhal 54 CCH 45(Del)- Distinguishing M.Piara Chodi
15. Ld. Counsel for the assessee submitted that perusal of the assessment order
would show that at the time of framing of assessment order the AO has solely
relied on the stale information of the investigation wing without carrying out any
enquires as per section 142(1).
15.1 Referring to the decisions of the coordinate Bench of the Tribunal in the
case of Karuna Garg in ITA No. 1069/Del/2019 dated 06.08.2019, he submitted
that the Tribunal has held that the AO cannot frame an assessment solely on the
basis of investigation wing information and he must carry out independent
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enquires by virtue of section 142(1) of the Act before drawing any adverse
inference against assessee. He submitted that this decision has been affirmed by
the Hon’ble High Court of Delhi. The ld. Counsel for the assessee drew the
attention of the Bench to the following observations of Hon’ble High Court:-
“A perusal of the assessment order clearly shows that the Assessing Officer
was carried away by the report of the Investigation Wing Kolkata. It can be
seen that the entire assessment has been framed by the Assessing Officer
without conducting any enquiry from the relevant parties or independent
source or evidence but has merely relied upon the statements recorded by
the Investigation Wing as well as information received from the
Investigation Wing, it is apparent from the Assessment Order that the
Assessing Officer has not conducted any independent and separate enquiry
in the case of the assessee. Even, the statement recorded by the
Investigation Wing has not been got confirmed or corroborated by the
person during the assessment proceedings.
Section 142 of the Act contains the provisions relating to enquiry before
assessment.
It is provided u/s. 142 (2) of the Act that for the purpose of obtaining full
information in respect of income or loss of any person, the Assessing
Officer may make such enquiry as he considers necessary. In our
considered view the Assessing Officer ought to have conducted a separate
and independent enquiry and any information received from the
Investigation Wing is required to be corroborated and reaffirm during the
assessment by the Assessing Officer by examining the concerned persons
who can affirm the statements already recorded by any other authority of
the department. Facts narrated above cleariy show that the Assessing
Officer has not made any enquiry and the entire assessment order and the
order of the first Appellate Authority are devoid of any such enquiry”
15.2 He accordingly submitted that the grounds raised by the assessee be
allowed.
16. The ld. DR, on the other hand, heavily relied on the order of the CIT(A).
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17. We have considered the rival arguments made by both the sides, perused
the orders of the AO and the CIT(A) and the paper book filed on behalf of the
assessee. We have also considered the various decisions cited before us. We
find, the AO, in the instant case, on the basis of a search operation conducted u/s
132 of the Act on 9th October, 2014 in the Kuber group of cases and on the basis
of the statement recorded of Shri Mul Chand Malu and on the basis of post search
enquiries, reopened the assessment after recording reasons. The reasons are
already reproduced in the preceding paragraphs. Accordingly, the AO issued
notice u/s 148 of the Act. The assessment proceedings were completed u/s
143(3)/147 of the Act by the AO determining the total income of the assessee at
Rs.1,71,21,533/- wherein he made addition at Rs.1,90,00,000/- u/s 68 of the Act
on account of share capital and share application money received by the assessee
from two concerns, namely, M/s Binapani Merchandise Pvt. Ltd. –
Rs.1,50,00,000/- ; and M/s Kansabati Tradecom Pvt. Ltd. – Rs. 40,00,000/-. We
find, the ld.CIT(A) upheld the validity of the reassessment proceedings as well as
the addition on merit. It is the submission of the ld. Counsel that the reassessment
proceedings u/s 147 of the Act was initiated solely on the basis of unverified,
unrectified, unsubstantiated and unconfirmed statement of Mr. Malu. It is his
submission that the information on the basis of which the reasons were conceived
was not gathered in search or post-search enquiries. It is his submission that the
search date was 9th October, 2014 and commission u/s 131(1)(d) of the Act was
made on 10.11.2016 and the statement of the persons alleged to have control over
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the investor companies were much prior to the date of search and issuance of
commission. Since the statements were recorded on 9.12.2013, 24.01.2014,
30.12.2014, 02.03.2015 and 01.05.2015, it is the submission of the ld. Counsel
that the averment of the AO that during search and post-search enquiries
information relating to the entities providing accommodation entries of share
application money, share premium and share capital and unsecured loan to Kuber
group entities came to light is factually incorrect. It is also his submission that
M/s Binapani Merchandise Pvt. Ltd. is not a ‘jamakharchi’ company as alleged
by the AO. However, it is only under the category of a company whose
addresses were not traceable. Further, the statement of Shri Vikas Aggarwal
were recorded during the previous enquiries/surveys/searches and not in
connection with the present commission issued in Kuber Group. It is also his
submission that Shri Vikas Aggarwal has never stated that he has given any
accommodation entry to the assessee company which is evident from Question
No.10 put to Shri Vikas Aggarwal and the name of the assessee company does
not appear. So far as M/s Kansabati Tradecom Pvt. Ltd. is concerned, it is the
submission of the ld. Counsel for the assessee that Shri Devesh Upadhyaya has
never admitted that he has given any accommodation entry to the assessee. In his
answer to questions No.7 and 8 Shri Devesh Upadhyaya has stated that
accommodation entries of bogus long-term capital gain is provided to various
entities and not share capital and premium. It is also his submission that during
the assessment proceedings, the AO has relied on the statement of Shri Vikas
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Aggarwal and Shri Devesh Upadhyaya without providing any opportunity to the
assessee to cross examine them. Even during the remand proceedings the AO
himself has admitted that the assessment was made on the basis of statement of
Shri Mul Chand Malu, who is neither a director nor employee of the assessee
company and, therefore, his statement cannot be relied upon. It is thus the
submission of the ld. Counsel for the assessee that the reassessment proceedings
initiated by the AO are not in accordance with the law. Further, the assessee has
filed all the relevant documents to substantiate the identity and credit worthiness
of the loan creditor and genuineness of the transaction and without allowing the
cross-examination the AO could not have made the addition solely on the basis of
third party statement. Thus, it is the argument of the ld. Counsel that the
reopening was made by the AO on the basis of wrong facts and he has not
examined the information received from the Investigation Wing independently
and, therefore, such reopening is invalid.
18. We find some force in the above argument of the ld. Counsel for the
assessee. We find, in the instant case the information on the basis of which
reasons were conceived was not gathered in search or post search enquiries.
Further, the observation of the AO that M/s Binapani Merchandise Pvt. Ltd. is a
Jamakharchi company is contrary to report of the commission copy of which is
placed at page 48 and 49 of the paper book which is as under:-
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19. From the above, it is clear that this company comes under the category of
those companies whose address is not traceable. We further find, Shri Vikas
Aggarwal, in his answer to questions No.7 to 12 has not named any of the
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companies who deposited the money is appearing. Further, in none of the
statements recorded by the Investigation Wing of Kolkata, the name of any
company who deposited money with the assessee company is appearing.
20. We find, the AO at para 6 of the order has mentioned as under:-
“6. During search, post search and survey proceedings in Kuber Group,
details relating to companies giving accommodation entries of share
application money, share premium, share capital and unsecured loans came
to light.
During search and seizure operations u/s 132 of Income Tax Act 1961 on
9.10.2014, in the statement recorded u/s 132(4) of the I.T. Act and during
the statement recorded on oath on 15.12.2014 at Room no.254, Income Tax
Office, Jhandewalan, New Delhi, Shri Mul Chand Malu had offered to
declare undisclosed income of Rs. 100 crore of the Kuber Group of
companies and their directors under specific head of share capital/ share
premium/capital formation out of total undisclosed income of Rs.150 crore.
The relevant parts of the statements are reproduced as under:-”
21. We find, although the assessee has specifically asked for cross-
examination of the persons whose statements were relied on by the AO, however,
the same was not provided.
22. So far as the name of Mr. Devesh Upadhya is concerned, we find the AO
has stated that in the commission report received from Kolkata office, statement
of Vikas Agrawala, Devesh Upadhya and Praveen Kumar are mentioned.
However, in none of these statements of entry operators, the name of the assessee
is mentioned. Further, opportunity to cross examine has not been provided. A
perusal of the chronology of date chart shows that the statements of all these
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ITA No.587/Del/2019
persons were recorded prior to the date of search in the Kuber group of cases i.e.,
on 09.10.2014.
23. We find, identical issue had come up before the Tribunal in the case of
sister concerns of the assessee, namely, Kuber Khanpan Udyog Pvt. Ltd. and
Kuber Food Products India Pvt. Ltd. in ITA No.580/Del/2019 and ITA
No.322/Del/2019, respectively, order dated 22nd October, 2019 for AY 2011-12.
We find, the Tribunal, in the case of Kuber Khanpan Udyog Pvt. Ltd., while
deciding the issue had noted the following facts at para 4 of the order:-
“4. Brief facts of the case is that Kuber Khanpan Udyog Pvt. Ltd filed its
return of income on 29.09.2011 for Rs. 320270/-. The assessment of the
company was reopened u/s 148 of the Act on 31.03.2017. The Assessee
filed return in response to that notice on 13.04.2017 declaring the same
income. The assessment u/s 143(3) read with section 147 of the Act was
passed on 12.05.2017 at Rs. 14795510/-. The addition of Rs. 1.35 crores
was made in the hands of the Assessee u/s 68 of the Act. During the search
and seizure u/s 132 of the Act on 09.10.2014 on Kuber Group of Cases
details relating to companies with respect to share capital and unsecured
loan came to the light. The statement recorded on oath on 15.12.2014 Shri
Mulchand Mallu declared undisclosed income of Rs. 100 crores of the
Kuber Group of Companies and its directors out of total undisclosed
income of Rs. 150 crores. During the course of assessment proceedings
statement of Mr. Malu was also recorded u/s 131 of the Act. The AO noted
that the Assessee issued share capital of Rs. 1.35 crores from M/s. Pawmex
Sales Pvt. Ltd and same was added u/s 68 of the Act. Against the order of
the ld Assessing Officer Assessee preferred appeal before the ld CIT(A),
who dismissed the appeal of the Assessee. …..”
23.1 We find, the Tribunal, after considering the arguments advanced by both
the sides, deleted the addition by observing as under:-
“11. Now we come to the other issues of the reopening of the assessment
challenged by the assessee. The reopening has been challenged by the
assessee stating that initiation of proceedings u/s 147 of the income tax act
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ITA No.587/Del/2019
is solely on the basis of the unverified, on rectified, unsubstantiated and
unconfirmed statement of Mr Malu. It is further the claim of the assessee
that the learned assessing officer has violated the principles of natural
justice by not providing the opportunity for cross-examination of the
persons whose statements have been relied upon by him in spite of specific
request made by the appellant in the assessment proceedings as well as
before the learned CIT – A. Admittedly in this case notice u/s 148 of the
income tax act was issued on 31/3/20 17. The reasons recorded in the first
paragraph clearly refer to the search and seizure operation carried out on the
coupe group of cases on 9/10/2014. During post search investigation
summons were issued u/s 131 of the income tax act to comic sales private
limited, which has provided the share capital to the assessee company. The
summons returned unserved. Further enquiries were made issuing
commission u/s 131 (1A) of the act and information was gathered from
investigation wing that the share deposit company is not physically existing
at the given address 125/1, cotton Street, Kolkata – 700007 whereas the
correct address of this company was 16 A, Shakespeare Sarani, New B K
Market, 5th Floor, Kolkatta 71. Thus, the learned assessing officer made the
inquiries at the incorrect address. Furthermore, the learned assessing officer
has heavily relied upon the statement of Mr. Vikas Agarwal residing at BC
– 75, Akanskha apartment, 4th floor Calcutta 101 that was recorded on
9/1/2014. He is an alleged entry operator. He admitted this in answer to
question number 6 of his statement. He named in answer to question
number 7 – 12 companies, however, the name of the company who
deposited share capital with the assessee was not appearing in the
statement. Further, in none of the other statements recorded by the
investigation wing Kolkata, the name of the company who deposited money
with the assessee was appearing. During the course of appellate proceedings
before the learned CIT – A, assessee submitted a remand report dated
25/10/2018, which is at page number 22 of 38 of the appellate order. In para
number 5 the learned AO stated that the assessment order are based on the
statement of Shri Moolchand Malu, post search investigation and
investigation during assessment proceedings. The assessee specifically
asked the AO to provide cross-examination or the information to show that
the amount of share capital taken by the assessee from the above stated
company is an accommodation entry. None of the statements of the
investigation wing, though referred to many of the companies, however the
name of this company from whom the assessee has taken share capital is
appearing. In para number 8 of the remand report, the learned assessing
officer has categorically stated that during the assessment proceedings
commission u/s 131 (1) (D) of the income tax act, 1961 was issued to the
Calcutta investigation wing. A list of 27 companies was sent for necessary
enquiry. As per report of Calcutta wing, 9 companies are such companies,
which are used for routing, and providing accommodation entry to the
beneficiaries as per the statement of the directors/to persons of respective
companies admitted during both during the previous enquiry
survey/searches. For balance 18 companies, as per inspector report, no such
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ITA No.587/Del/2019
companies existed at the addresses mentioned. The name of the company
who deposited money with the assessee appears in the list of 18 companies
where the inspector has gone to the incorrect address as held above.
Further, at para number 10 of the remand report, request of the assessee for
cross-examination is dealt with. The learned assessing officer and stated
that in the commission report received from Calcutta office, statement of
Mr VIkas Kumar AGarwal, Devesh Upadhyay, and Praveen Kumar was
mentioned. However, in none of these entry operators’ statement the name
of the company, which deposited money with the assessee, is mentioned.
Further assessee asked the cross-examination of these persons who have
mentioned the name of the above-deposited company. Statement recorded
of all these persons are prior to date of search on Kuber Group. Thus,
statements are recorded by the investigation wing prior to search, naturally
before the reasons were recorded. Before the learned CIT – A, on the
specific request of the assessee that AO has not granted an opportunity of
the cross-examination of those persons, even the learned CIT – A directed
the AO to grant cross- examination of those person however AO expressed
his inability to do so. With respect to the identity, creditworthiness and
genuineness of the transactions the assessee submitted return of income of
the share applicant, it is audited balance sheet, confirmation of the
transactions and bank statement of the share applicants. Therefore, the
claim of assessee is that it has discharged initial onus cast upon it
under section 68 of the income tax act. The learned AO merely on the basis
of the statement of the entry operators, who did not name the share deposit
as 1 of the companies operated by them, the inspector report saying that
share deposit and did not exist by inquiring at the incorrect address and
failure to give cross- examination of those entry operators, which are the
only statement against the assessee, the addition made by the learned
assessing officer cannot be sustained. Honourable Supreme Court in CIVIL
APPEAL NO. 4228 OF 2006 M/S ANDAMAN TIMBER INDUSTRIES
VERSUS COMMISSIONER OF CENTRAL EXCISE,KOLKATA-II has
held that when except the statement of the 3rd party is the only evidence
available with the revenue authorities, addition cannot be made on that
solitary evidence without granting the cross-examination of such 3rd party
to the assessee when asked for. In the present case the assessee asked for
cross-examination before the assessing officer and as well as before the
learned CIT – A, the assessee did not give the cross-examination of those
accommodation entry providers. Further, the copies of the statement given
by the assessing officer during the course of remand proceedings, none of
the statement of the entry provider implicated the company, which
deposited the share capital with the assessee. In view of the above facts, the
addition made by the learned assessing officer and sustained by the learned
CIT – A cannot be upheld. Therefore we direct the learned AO to delete the
addition of INR 13,500,000 in ITA number 580/del/2019 and INR
21,500,000 in ITA number 322/del/2019.
12. In the result, both these appeals are partly allowed.”
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ITA No.587/Del/2019
24. Since the assessee in the instant case also belongs to the Kuber Group of
companies and the facts are identical, therefore, respectfully following the
decision of the Tribunal in the case of Kuber Khanpan Udyog (P) Ltd. (supra),
we hold that the addition made by the AO and sustained by the CIT(A) cannot be
upheld. We, therefore, set aside the order of the ld.CIT(A) and direct the AO to
delete the addition. The grounds raised by the assessee are partly allowed.
25. In the result, the appeal filed by the assessee is partly allowed.
Pronounced in the open court on 06.12.2021.
Sd/- Sd/-
(SUCHITRA KAMBLE) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 06th December, 2021.
dk
Copy forwarded to :
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asstt. Registrar, ITAT, New Delhi
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