Say ‘No’ to Accommodation entries

What is Accommodation entries

In an economy where unaccounted income is a big menace, there are always efforts made by the tax evaders to bring their unaccounted income back to their books of account without paying any tax on the same. Numerous methods and techniques are used for this purpose and there are lots of techniques that Income Tax Department know about and probably countless others that have yet to be uncovered. Routing the unaccounted income back to the books of account disguised as loan or share capital is one of such methods widely used by the tax evaders in our country. The method is most prevalent and perhaps also one of the most organized one to bring the unaccounted money back to the books of account and even the established business houses resort to this method to bring their unaccounted money back to their business without paying any tax on the same. The process to bring the money back in this manner is commonly known in business parlance as Jamakharchi entries or accommodation entries. This is a well organized racket controlled and conducted by persons known as entry providers.

As per the Directorate of Income Tax (Investigation) Kolkata report in case of “Project Bogus LTCG through BSE Listed Penny Stocks”, Accommodation entry is a financial transaction between the two parties where one party enters the financial transaction in its books to accommodate the other party in lieu of cash of equal amount and commission charged over and above at certain fixed percentage. These accommodation entries are taken by various beneficiaries for introducing their unaccounted cash into their books of accounts without paying the due taxes.

An entry operator

As per the DIT (investigation) report, an entry operator is the person who is in the business of giving accommodation entries in lieu of cash/cheque of equal amount after charging certain percentage of commission in cash.

Modus operandi

An accommodation entry provider accepts cash from an Assessee and arranges to have a cheque issued from his own account or some other account, usually of ‘paper’ or fake entities, to make it appear to be a loan or an investment in share capital. The accommodation entry provider usually charges a commission which is deducted upfront.

The method of providing accommodation entry entails breaking up large amounts of money into smaller, less-suspicious amounts. In India, this smaller amount has to be below Rs. 50,000/- as deposit of cash below this amount does not require providing PAN of the depositors. The money is then deposited into one or more bank accounts either by multiple people or by a single person over an extended period of time. Also, even larger amounts are deposited in the banks with PAN numbers of individuals who are mostly illiterate and work for these entry operators for small salary or commission. The money is then routed through paper companies controlled by these operators. These companies are incorporated by taking care of all formalities such as registering with ROC but having only postal addresses with no real office or employees. The directors of such companies are again individuals who are mostly illiterate or semiliterate and work for the entry operators for small salaries or commission. At first sight, most of these companies would pass of as finance, investment or technology companies. But as the entry operators would secretly admit, these are only paper companies used to route the unaccounted income and, at the same time, clean hoards of unaccounted income for their clients. These companies used for routing the unaccounted money are basically fake companies that exist for no other reason than to ‘layer’ the entries or pass it on to the beneficiary as loan or share capital. They take in unaccounted money as “loan or share capital” and pass it on to either another such paper company for ‘layering’ of the transaction or directly to the beneficiary as loan or share capital. They simply create the appearance of legitimate transactions through fake entries of loans or share capital in their books of account. As has been exposed from time to time through search and seizure operations by the department, such entry operators controls hundreds of bank accounts for depositing cash and hundreds of companies for routing the entries. Limited resource and infrastructure of the Registrar of Companies (ROC) perhaps makes it easier for them to incorporate large number of such paper companies without any difficulty. The process, prima facie, may appear very simple but it is extremely difficult to expose the whole chain of money deposited and ‘layers’ through which it is routed back to the beneficiary.

The biggest problem is that there is no effective deterrence to curb the activities of these entry operators. Even conducting search and seizure operations against them have not really worked as a deterrence and such operations often ended up in disclosure of ‘unaccounted commission income’ of these entry operators which definitely could not be the purpose of conducting search and seizure operations against these operators.

As per the “Report of the DIT (Investigation), Kolkata - Modus operandi in brief

As per the “Report of the DIT (Investigation), Kolkata”, the modus operandi was to make the beneficiary 101 buy some shares of pre-determined penny stock company controlled by the entry operators 102 at a very low price through exchange itself or through preferential allotment i.e. through private placement. The beneficiary holds the shares for one year, the statutory period after which LTCG received over penny stock was exempt under section 10(38) of the Act till 31st March 2018. In the meantime, operators rig the price of stock and gradually raise its price many times, often 20 to 25 times. When the prices reach desired level, the beneficiary who bought the shares at nominal price, is made to sell it to a dummy paper company of the operator. For this, the report says unaccounted cash was provided by the beneficiaries which were routed through a few layers of paper companies by the operator and finally parked with the dummy paper company also known as the Exit Provider which will buy the shares.

 

Role of Income Tax Department

Income Tax Department (ITD) is primarily responsible for combating the menace of black money. For this purpose, it uses the tools of scrutiny assessment as well as information based investigations for detecting tax evasion and penalizing those found guilty of tax evasion as per the provisions of the Income Tax Act, 1961 (“the Act”). In doing so, ITD plays an important role in preventing generation, accumulation and consumption of unaccounted black money. Investigation Wing of the ITD often collects information from various sources, carries out investigations and conveys its findings to the Assessing Officers for them to examine these findings and take necessary remedial actions.

 

Suggestive questionnaire for Assessing Officer to make investigation while dealing with Accommodation entry issues

Following suggestive questions are for the Assessing Officer to make investigation while dealing with accommodation entry issues :

(1)       Whether the two parties were related or known to each other, or mode by which parties approached each other?

(2)       Whether the transaction was entered into through written documentation to protect investment?

(3)       Whether the investor was an angel investor?

(4)       What was the quantum of money invested?

(5)       How the party believed the credit-worthiness of the recipient?

(6)       What was the object and purpose of payment/investment?

(7)       Whether the share applicant was in existence and an independent entity?

(8)       How the financial capacity of the share applicant to invest funds was proved?

(9)       How the source of funds from which the high share premium was invested was dealt with by the assessee?

(10)    Why the investor companies had applied for shares of the assessee company at a high premium?

(11)    In case the field enquiry conducted by the AO revealed that the investor companies were found to be non-existent, whether the onus to establish the identity of the investor companies was not discharged by the assessee?

(12)    12.Whether the assessee discharged their legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO?

(13)    Whether the assessee discharged the onus to establish the credit worthiness of the investor companies?

(14)    Did the assessee do anything more than mere mention of the income tax file number of an investor to discharge the onus under section 68?

(15)    Did the assessee do anything more than mere filing all the primary evidence in discharge of their onus to prove the identity of the investee?

Theory of Human Probability

It is also important that when we examine the genuineness of the transactions entered into by the assessee, we must also bear in mind Hon’ble Supreme Court’s observation, in the case of CIT v. Durga Prasad More (1971) 82 ITR 540 (SC), to the effect that “Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities”.

The Hon’ble Supreme Court in CIT v. Durga Prasad More (1971) 82 ITR 540 Hegde J. speaking for the Supreme Court observed as under: -

“Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.”

Similarly, in a later decision in the case of Sumati Dayal v. CIT [(1995) 214 ITR 801 (SC), Hon’ble Supreme Court rejected the theory that it is for alleger to prove that the apparent and not real, and observed as under:

“This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities. ……….Similarly the observation ……….that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available …..”

Detailed reasons were recorded by revenue in satisfaction note with respect to investment which were made by assessee for brief period and were repaid in same year and that investment was alleged to be an accommodation entry, it could not be said that reasons recorded by revenue did not satisfy prerequisite conditions of section 132(1)

Assessee invested substantial amount of money in form of loan in company, ‘G'. ‘G’ repaid loan along with interest on different dates starting from 06.10.2016 till 31.03.2017. A search was conducted at premises of assessee and ‘S’ who was a director of borrower company and assessee was asked to submit details of his assets. Detailed satisfaction note showed multiple entries in account books of ‘S’ and others and manner of ‘S’ who was either in Siliguri (North Bengal) or in Goa contacting assessee in Ahmedabad for a loan of Rs. 10 crores did not appear to be a normal transaction. It was noted that satisfaction note was recorded in terms of ‘S’ whose jurisdictional Assessing Officer was in West Bengal and it was cobweb of accounts of such assessee which were required to be unravelled thus, it was not unreasonable for revenue to apprehend that assessee would not respond to summons before Assessing Officer in State of West Bengal. Detailed reasons were recorded in said satisfaction note which included that investment was made by assessee for brief period in ‘G’ which was repaid in same year and that investment was merely an accomodationentry. Sufficiency or inadequacy of reasons to believe recorded could not be gone into while considering validity of an act of authorization to conduct search and seizure, belief recorded alone was justiciable. Thus, clauses (a), (b) and (c) of sub-section (1) of section 132 were satisfied and High Court was not justified in setting aside authorisation of search. [In favour of revenue] (Related Assessment year : 2017-18) – [Principal Director of Income-tax (Investigation) v. Laljibhai Kanjibhai Mandalia (2022) 446 ITR 18 : 288 Taxman 361 : 140 taxmann.com 282 (SC)]

Fraud vitiates everything; Denies Section 10(38) exemption, holds share transaction void ab initio

Pune ITAT dismisses Assessee’s appeal, denies the exemption claimed under Section 10(38) and confirms the addition under Section 68 by applying the settled legal principle “fraud vitiates everything”; Observes that even principles of natural justice have no application and holds such transaction as void ab initio; ITAT holds that the share transaction to be nothing but sham, make believe and colourful device adopted with excellent paper work with the intention of bringing the undisclosed income into books of account; Assessee-Individual, deriving income from the execution of contracts etc, for Assessment year 2014-15, sold shares of SRK Industries Ltd. and claimed the sale proceeds under Section 10(38) as exemption of capital gains; Revenue denied Assessee’s claim and held that the transactions of purchase and sale of the said shares to be a bogus transaction and that the Assessee is a beneficiary of accommodation entries provided by Kolkata-based entry provider, on the basis of report by the Investigation Wing of the Income Tax Department and SEBI; Thus, Revenue made addition of sale proceeds of the shares under section 68; CIT(A) confirmed Revenue’s action invoking the doctrine of test of human probability, against which Assessee preferred the present appeal; ITAT notes that a statement of the Kolkata-based entry provider was recorded during a search and seizure operation on his premises, wherein he admitted to have provided the accommodation entries in respect of scrips of SRK Limited; Observes that Assessee, despite the adequate opportunity afforded by Revenue, failed to rebut the findings of the Revenue that the transaction of sale of the said share is a bogus transaction; Relies on Calcutta High Court ruling in Swati Bajaj, wherein the similar addition was affirmed by holding that Revenue had cogently brought out the factual scenario to establish machinations of fraudulent, manipulative and deceptive dealings and how the stock exchanges system was misused to generate bogus LTCG; Relies on Supreme Court ruling in Friends Trading Co., where in the context of availment of alleged forged DEPB under the Customs Act, it was held that the exemption benefit availed on such forged DEPB are void ab initio; Observes that Assessee deliberately withheld the information from the Revenue and CIT(A) which is within exclusive knowledge of the Assessee to establish the genuineness of transactions of purchase of shares of that company; Remarks that it is nothing but a fraud played by the Assessee against the quasi-judicial authorities, i.e. Assessing Officer and the CIT(A), who are employed for execution of the provisions of the Act. [In favour of revenue] (Related Assessment year : 2014-15) – [Abhishek Ashok Lohade v. ITO, Nasik [TS-906-ITAT-2022(PUN)] – Date of Judgement ; 22.11.2022 (ITAT Pune)]

Upholds Section 148A(d) order passed over accommodation entry of Rs. 50 Lac pursuant to a second show cause notice (SCN) issued in continuation of first SCN on the same transaction

Delhi High Court upholds Section 148A(d) order passed over accommodation entry of Rs.50 Lac pursuant to a second show cause notice (SCN) issued in continuation of first SCN on the same transaction, issued after Supreme Court ruling in Ashish Agrawal; Assessee-Individual was subjected to reassessment proceedings for Assessment year 2013-14 under the old regime by notice dated 19.04.2021 which was quashed by the coordinate bench ruling in Mon Mohan Kohli; Pursuant to Supreme Court ruling in Ashish Agrawal, Assessee was issued SCN dated 17.05.2022 alleging that the Assessee entered into financial transactions i.e. cash deposit of Rs. 50 Lacs and immediately withdrew it in cash from ATM; Assessee responded to the SCN through reply dated 24.05.2022 stating that she had not carried-out any financial transactions relating to deposit of cash in her current account and that she did not even possess a debit card to withdraw the cash; Assessee was issued another SCN on 23.06.2022 explaining the chain of transaction that led to an allegation of accommodation entry in Assessee’s name; Assessee furnished another reply dt. Jun 28, 2022 stating that the SCN lacked information as to the date of receipt of the alleged sum or material relied upon to substantiate allegation; Revenue passed the order under Section 148A(d) on Jul 22, 2022 and issued the notice under Section 148; Assessee challenged Section 148A(d) order as time barred stating that the last date for passing the order was 30.06.2022 since the reply to SCN was furnished on 24.05.2022 and the procedure adopted is violation of SC ruling in Ashish Agarwal; Assessee also submitted that allegation in the SCN dated 23.06.2022 were materially different from the allegation in the SCN dated 17.05.2022 and the allegation pertaining to credit of Rs. 50 Lacs is not an ‘asset’ within the meaning of Section 149(1)(b); Revenue highlighted that the bank statement furnished by the Assessee contained the transaction between the Assessee and the accommodation entry provider against which Assessee had not offered any explanation in the reply; Revenue also submitted that bank deposit would amount to an ‘asset’ under Section 149(1)(b); Assessee submitted that out of multiple entries in the bank account, a specific entry was not identified in the SCN; High observes that Section 148A(d) order identifies the transaction specifically which was subject matter of SCNs and rejects Assessee’s submission that the Revenue was precluded from providing the information set out in the notice dated 23.06.2022; High Court observes that the second SCN gave specific details of the transaction which was subject matter of the first SCN while noting Revenue’s submission that the underlying information was on record even at the time of issuing the very first SCN dated 19.04.2021; Thus, upholds the order under Section 148A(d) in the absence of any explanation offered by the Assessee and also rejects the submission that the Assessee was not given ample opportunity to furnish a reply while observing that the Assessee elected not to reply; High Court finds no infirmity in the order without expressing any opinion on merits. [In favour of revenue] (Related Assessment year : 2013-14) – [Saroj Chandna v. ITO – Date of Judgement : 30.08.2022 (Del.)]

Assessee-trust received donation from donors who initially submitted confirmation of donation, however during investigation by CBI confessed that they had not given any such donations; since genuineness of donors could not be established, donations were to be treated as bogus and additions were to be made under section 68

Assessee was an educational trust. Assessing Officer received information from DDIT (Investigation), based on a report of Central Bureau of Investigation (CBI). Report disclosed that chairman of assessee-trust had made huge cash deposits in accounts of assessee with intent to evade tax - Assessing Officer on basis of aforesaid information reopened assessment and made additions under section 68 on account of unexplained receipts. Assessee contended that evidences were provided for confirmation of donations along with relevant bank statements to prove genuineness, creditworthiness and identity of donors. It was noted that donors which initially during original assessment submitted confirmation of donation, confessed that they had not given any such donations during investigation by CBI. Also while making enquiries, Assessing Officer received documents from CBI which revealed that assessee-trust had received certain sum from one MG who was involved in providing accomodationentries. Since Assessing Officer had specific information about cash deposits, supported by statement of witnesses, there were reason to believe that income of assessee had escaped assessment and, thus, justifying reopening of assessment under section 147. Since genuineness of donors could not be established, donations were to be treated as bogus, and additions made under section 68 were justified. [In favour of revenue] Assessment years 2006-07 and 2007-08 - [Brijbasi Education and Welfare Society (2021) 431 ITR 126 : 278 Taxman 246 : 125 taxmann.com 95 (Del.)]

Assessee had received certain amount in cash in her bank account, since assessee had not given any evidence to prove that this was not her turnover, Assessing Officer was justified in treating entire deposits as assessee’s turnover and assuming net profit thereupon at rate of 5 per cent

An information was received that during year assessee had deposited certain amount in cash in her bank account but no return of income was filed by assessee. Therefore, Assessing Officer issued a reopening notice against assessee. He further passed an assessment order under section 143(3) read with section 147 treating entire deposits in her account as turnover belonging to assessee and assuming net profit thereupon at rate of 5 per cent. Assessee contended that bank account was misused for purposes of accommodation entries for which she had also received commission and she was just a housewife and wife of a labourer who never carried on any business, thus, by no stretch of mind her misused bank account receipts could be reckoned as her turnover. It was noted that credit was in bank account of assessee and it was onus of assessee to prove correct nature of credits - She had not given any evidence to prove that this was not her turnover. Affidavit filed by her was not supported by any evidence and was self-serving - So far as net profit rate of 5 per cent was concerned, same was reasonable. On facts, impugned addition made by Assessing Officer was justified. [In favour of revenue] (Related Assessment year : 2010-11) – [Smt. Uma Mandal v. ITO, Jaipur (2021) 191 ITD 212 : 128 taxmann.com 369 (ITAT Jaipur)]

Overturns Calcutta High Court ruling, upholds order cancelling Trust’s exemption over bogus donation, accommodation entries

Supreme Court overturns Calcutta High Court ruling, upholds ITAT’s order cancelling registration of Trust under section 12AA and 80G for receiving bogus donations and facilitating accommodation entries, finds error on High Court’s part in deciding the appeal; Assessee-Trust was registered under section 12AA and was also approved under section 80G; In a survey conducted on another entity, it was observed that Assessee was not carrying out its activities in accordance with its objects, and thus, was served with a SCN with a questionnaire in response to which the Managing Trustee of Assessee admitted to have received non-genuine donations, and admitted that most donations were in the nature of accommodation entries received to inflate the amount of reserves and facilitate procurement of loans from Banks; CIT(E) cancelled Assessee’s registration for exemption and held it to be acting in violation of its objects and engaged in money laundering activities; ITAT upheld the order of CIT(E)cancelling the registration against which High Court admitted two substantial questions of law: (i) on validity of cancellation of registration and (ii) on evidentiary or probative value of a statement recorded during survey; High Court held that Revenue was unable to establish a case justifying cancellation of registration and complicity of the Assessee in any illegal, immoral or irregular activity of the donors, and thus allowed the appeal in favour of the Assessee and directed the Revenue to restore the registration without delving into the second question; Supreme Court observes that the answers given to the questionnaire by the Managing Trustee showed the extent of misuse of the exemption status enjoyed by the Trust; Supreme Court further observes that as evident from the answers given donations were received by way of cheques out of which, substantial money was ploughed back or returned to the donors in cash; Supreme Court further remarks that the High Court completely erred in entertaining the appeal under Section 260A and did not even attempt to deal with the answers to the questionnaire; Supreme Court holds that the Trust was misusing its status uunder section 12AA and upheld cancellation of its registration by the Revenue. [In favour of revenue] - [CIT (Exemptions), Kolkata v. Batanagar Education And Research Trust [TS-614-SC-2021] – Date of Judgement : 02.08.2021 (SC)]

Rejects Vedanta’s full/true disclosure defence; Upholds re-assessment initiation for ‘accommodation entry’ probe; Imposes cost of Rs. 1 lakh on assessee

Delhi High Court dismisses Vedanta's (assessee, as successor of Sterlite Industries (P) Ltd. [SIPL]) writ challenging reopening initiation for Assessment year 2012-13 (beyond 4 years), imposes cost of Rs. 1 lakh on assessee  for ‘unjustifiably pressing the petition beyond a point’; Based on the investigation report, it was revealed that one party [Moral Alloys] with whom SIPL had dealings, was involved in providing accommodation entry, accordingly, Assessing Officer had held that SIPL's sale transaction with Moral Alloys to the tune of Rs. 90 cr. during subject Assessment year was not genuine and thereby assessee’s [alleged ultimate beneficiary] income had escaped assessment; Rejects assessee's contention that the Assessing Officer had acted on the basis of borrowed wisdom contained in the Investigation Report and had not applied his mind independently, observes that the Assessing Officer had conducted ‘elaborate’ extensive analysis evidencing the business model of Moral Alloys which was merely to rotate funds through a process of layering;  High Court opines that, 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.”, cites Supreme Court ruling in NRA Iron; Rejects assessee’s stand that there was no failure on its part to disclose fully and truly all material facts,  remarks that the, 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.”; Relying on co-ordinate bench's recent decision in RDS Project Ltd., High Court imposes cost and states that, Despite the aforesaid being a gross case .learned counsel .continued to press the matter at the expense of judicial time, which could have been better utilised to deal with other pending cases.” – [In favour of revenue] (Related Assessment year : 2012-13) - [Vedanta Ltd. v. ACIT [TS-826-HC-2019(DEL)] – Date of Judgement : 20.12.2019 (Del.)]

Assessing Officer issued reassessment notice and disallowed deduction under section 10AA on basis of statements recorded under section 132(4) wherein it was established that assessee was beneficiary of accommodation entries from two concerns by obtaining bogus purchase bills and, further, assessee also failed to prove genuineness of such purchases, impugned disallowance was justified

Assessee was dealing in manufacturing of diamonds. It claimed deduction under section 10AA as regards export made by assessee’s SEZ unit which was allowed during original assessment. Later, Assessing Officer issued reassessment notice under section 148 being of view that assessee was beneficiary of accommodation entries from two concerns by obtaining bogus purchase bill amounting to Rs. 2.09 crores and made disallowance of 25 per cent of total purchase. On appeal, Tribunal upheld aforesaid disallowance. Assessee contended that reassessment proceedings had been initiated merely on change of opinion as all primary facts, books of account, bills were already known to Assessing Officer. It was found that statements were recorded by Assessing Officer under section 132(4) during search of premises of said concerns wherein it was established that said concerns were indulged in providing accommodation entries for bogus purchases and sales and, further, assessee failed to prove genuineness and verification of such transactions. Since Assessing Officer had called upon assessee to prove genuineness of transaction on basis of statement recorded under section 132(4) and assessee failed to do so, therefore, deduction under section 10AA was rightly disallowed. [In favour of revenue] (Related Assessment year : 2007-08) - [Goenka Jewellers v. CIT, Jaipur (2019) 417 ITR 686 : (2018) 100 taxmann.com 517 (Raj)]

Upholds reassessment, disallows purchases considering Sales-tax Department information about assessee’s Hawala transactions

Chirag Rajendra Shah(assessee) is engaged in the business as a reseller and trader in iron and steel under a proprietorship concern. During the Assessment year 2009-10 Assessing Officer received information from DGIT(Inv.)/ Mumbai and Sales Tax Department that the assessee was beneficiary of hawala accommodation entries from entry providers by way of bogus purchase. The accommodation entry provider has deposed and admitted before the Maharashtra Sales Tax Authority vide statement/ affidavit that they were engaged in providing bogus accommodation entries wherein bogus sale bills were issued without delivery of goods, in consideration for commission. Assessee was stated to be one of the beneficiaries of these bogus entries of sale of material from hawala entry operators in favour of the assessee wherein the assessee made alleged bogus purchases through these bogus bills issued by hawala entry providers in favour of the assessee. Assessing Officer observed that the parties issued accommodation bills without actual sale and delivery of goods and therefore the case was re-opened. Assessing Officer issued notice under section 133(6) to 5 parties which were returned back with remarks 'not known/left/unclaimed and address incomplete'. Further under section 131 Assessing Officer issued summons to the assessee to produce the parties, books of accounts etc. Assessee submitted that he had already filed the details of the purchase parties and the sales details, copies of vouchers and expenses made towards transportation and octroi. Assessing Officer rejected assessee's explanation on the ground that assessee had not produced a single party, further contended that the confirmations filed were self-made ones without any supporting evidences like copy of PAN card, Driving license or passport so that the signature of alleged hawala parties could be verified.  Assessing Officer relied upon the deposition made by the Principal Officer of the alleged concerns before the Sales Tax Department wherein all of them had admitted that they were not doing any genuine business but were indulged in providing accommodation entries to people who needed their services. Thus, Assessing Officer held that assessee had purchased the goods at cheaper cost rom hawala operators to avoid payment of sale tax, excise duty and disallowance under section 40A(3). Assessing Officer treated the aggregate purchases as unexplained expenditure under section 69C. On appeal CIT(A) confirmed Assessing Officer’s order. Aggrieved, assessee filed an appeal before Mumbai ITAT.

Before ITAT, assessee contended that the original return of income remained unprocessed and an order under section 147 should not have been passed. Assessee further argued that no independent inquiry was conducted by Assessing Officer and had taken contrary stand than what was recorded in the reasons for reopening.

ITAT observed that tangible and cogent incriminating material was received by the Assessing Officer which clearly showed that the assessee was beneficiary of bogus purchase entries from bogus entry providers which formed the reason to believe by the Assessing Officer that income has escaped assessment. ITAT thus remarked that, The information so received by the Assessing Officer has live link with reason to believe that income has escaped assessment. On these incriminating tangible material information, assessment was reopened”. ITAT held that there has to be prima facie belief based on some tangible and material information about escapement of income and the same is not required to be proved to the guilt. In view of the above, ITAT relied on Supreme Court ruling in Rajesh Jhaveri Stock Brokers (P) Ltd. [TS-24-SC-2007-O]

ITAT took note of assessee’s contention that the reopening was done on bogus purchase whereas while completing the assessment, purchases were treated as genuine. ITAT stated that credible and cogent information was received by the Assessing Officer that assessee was found to have taken accommodation entry/bogus purchase bills during the concerned assessment year from different parties. ITAT noted that in such factual scenario, Assessing Officer had made the necessary enquiry. ITAT observed that notice to all the parties were returned unserved and assessee was not able to provide any confirmation from any of the party. ITAT also observed that assessee was not able to produce any of the parties. ITAT noted that the necessary evidence for transportation of goods have not been provided by the assessee. ITAT stated that, mere preparation of documents for purchases cannot controvert overwhelming evidence that the provider of these bills are bogus and non-existent and there is no cogent evidence of transportation of goods. Thus, ITAT remarked that, purchase bills from these non-existent the/bogus parties cannot be taken as cogent evidence of purchases, in light of the overwhelming evidence the revenue authorities cannot put upon blinkers and accept these purchases as genuine.” In view of the above ITAT relied on Supreme Court rulings in Sumati Dayal [TS-5013-SC-1995-O] and Durga Prasad More [TS-19-SC-1971-O].

ITAT noted that in the given case contention that when the suppliers are non-existent, bogus should be ignored and only the documents being produced should be considered. ITAT thus remarked that, This proposition is totally unsustainable in light of above apex court decisions.” ITAT thus ruled in favour of Revenue.

Separately, on merits, with respect to Revenue's contention that when purchase bills have been found to be bogus 100% disallowance was required, ITAT relied on Gujarat HC ruling in Simit P. Sheth [TS-24-ITAT-2013(GUJARAT)-O] and held that a disallowance of 12.5% of the bogus purchase would meet the end of justice. [In favour of revenue] (Related Assessment years : 2009-10 to 2011-12) – [Chirag Shah v. ITO [TS-183-ITAT-2018(Mum)] – Date of Judgement : 03.04.2018 (ITAT Mumbai)]

ITAT explains how accommodation entries are routed through shell companies as share capital to evade taxes

Assessee has received share application money from five companies of Rs. 10 lakhs each towards issue of 10000 shares of face value of Rs. 10 each at a premium of Rs. 90 per share to each of the company. Assessing officer noted that the authorized capital of the assessee company has increased from Rs. 5 lakhs to Rs. 20 lakhs and in pursuance thereof 50,000 shares of Rs. 10 which were allotted at the premium of Rs. 90 per share to the five companies.

Before the ld Assessing Officer the assessee submitted a confirmation, copy of the income tax return, copy of share application form, copy of bank statement, copy of PAN and copy of memorandum of articles and association. The ld Assessing Officer issued notice under section 133(6) and calling for the bank statement from the five parties vide order sheet entry dated 14.11.2008. The ld Assessing Officer further issued notices to the banks of the five companies to provide their bank statement. The bank statement provided by the assessee showed that before the issue of cheques to the assessee company there were transfer entries in the bank account of those company, however, when the bank statements are received from the banks by the Assessing Officer it was found that instead of cheques or transfer entries in their bank account there was deposit of cash. In the 133(6) reply filed by the parties also similar forged bank accounts were submitted therefore, apparently the issue was that bank accounts of the depositors as per the banker showed that cash was deposited in their bank accounts prior to issue of cheques whereas the assessee and the depositors showed that there were clearing or transfer entries prior to the issue of the cheque. The ld CIT(A) has dealt with the whole issue confirming the addition under section 68 of the Act

ITAT noted that whole exercise carried out by the assessee is simply a devise to introduce unaccounted money through various shell companies in the form of share capital at a premium. The manner of issue of the shares through these companies, the manner of providing confirmation on the letter pad, the manner of maintaining the annual accounts and the manner of submitting the bank accounts on the letter pad or on a computerized print out to give it a semblance of originality to defraud the revenue, proves much more than what is under challenge before us. It shows the whole picture how the accommodation entries are routed through shell companies as share capital to evade the taxes. The whole façade created by assessee shows the real purpose of introducing the unaccounted money of the assessee without payment of taxes. [In favour of revenue] (Related Assessment year : 2006-07) – [Shaan Construction (P) Ltd v. ITO - Date of Judgement : 28.03.2018 (ITAT Delhi)]

Company’s actual business had commenced only after petitioner joined company as additional director and during his tenure, there were substantial accommodation entries giving rise to huge tax demand, uplifting of corporate veil to hold petitioner liable for said demand was justified

Investigation revealed that company was set up as public limited company, but immediately after incorporation and commencement of business it had partaken character of a private limited company as public had not been invited to subscribe share capital of company. Authority specifically found that company HBL was formed only to provide accommodation entries in form of bogus share capital and share premium only after induction of petitioner as director and substantial cash flow and substantial increase in capital and certificate of commencement of business was also obtained by company only after petitioner joined company. Further, during his tenure as director, petitioner held 98.33 per cent shareholding and after his resignation, substratum of company eroded and it was left with huge liabilities. Company was a defacto private limited company and uplifting of corporate veil to hold petitioner liable for demand against company was justified. [In favour of revenue] - [Ajay Surendra Patel v. DCIT  (2017) 394 ITR 321 : 293 CTR 249 : 78 taxmann.com 339 (Guj.)]

Purchases made by assessee from a properietory concern were bogus and entries were in nature of accommodation entries, merely because assessee had disclosed such entries in return filed and also showed such purchases in books of accounts would hardly be sufficient to advance arguments of full and true disclosure by assessee

There were serious infirmities noticed in transactions of a properietary concern whom assessee paid a huge sum of Rs. 4.48 crores by way of purchases. Substantial amounts were received by that concern from various sources in bank accounts which were withdrawan in cash shortly after receipt - Summons issued by department were not responded. Even entity was not found existing at given address. Proprietor of concern could not be served since he was not found at address supplied - Whether since impugned purchases of assessee from said concern were bogus and sales and entries were in nature of accommodation entries, merely because assessee had disclosed such entries in return filed and also showed such purchases in books of account would hardly be sufficient to advance arguments of full and true disclosure. Therefore, Assessing Officer was justified in issuing reassessment notice under section 148 against assessee. [In favour of revenue] (Related Assessment year : 2009-10) – [Gujarat Ambuja Exports Ltd. v. DCIT (2017) 250 Taxman 482 : 86 taxmann.com 69 (Guj.)]

Offering capital gains cannot make transactions with accommodation entry provider genuine

Aassessee-company was subject to scrutiny assessment and re-assessment proceedings for Assessment year 2004-05. A survey operation was carried out (dated 20.11.2007) on the business premises of one Sh. S. K. Gupta (chartered accountant) wherein it was found that he was engaged in the business of providing accommodation entries to various persons by running number of paper companies where his family members or acquaintances were the directors and major shareholders. It was also found that the detailed accounts of such accommodation entry was recorded in tally” software wherein details of cash received and issuance of checks with the dates, check numbers, name of issuing entities etc., were mentioned. As a result of this, a search was carried on Bhushan steel group, wherein documents belonging to the assessee-company were found and seized. Further, it was found that assessee was one of those companies controlled by S. K. Gupta, from where he used to provide the accommodation entries and also it was found that an amount of Rs. 2.03 crores was recorded during Assessment year 2004-05 in assessee's ledger maintained in tally. Pursuant to these facts, assessee was served with a notice dated 23.11.2010, under section 153(3)(C). Thereafter, during the assessment proceedings, assessee took stand that impugned transactions were regular in nature of purchase and sale of the shares. Assessing Officer rejected assessee's contention and in absence of evidences about the identity, creditworthiness and genuineness of those transactions, Assessing Officer made an addition of Rs. 2.10 crores to the total income as an unexplained income. CIT(A) rejected assessee's all contentions on the jurisdictional issue of the provisions of Section 153A and 153C, however he deleted Assessing Officer’s addition on the ground that capital gains offered to tax on the sale was already charged to tax in the original assessments and held that cross-examination was not afforded to the assessee. Aggrieved, Revenue filed an appeal before Delhi ITAT.

ITAT observed that the assessee didn't deny entering into the transaction with Mr. S. K. Gupta, or all those entities, which were named as accommodation entry providers. ITAT further observed that assessee did not produce contract notes of sales and purchases of such securities which were claimed to be purchased and sold through Mr. S. K. Gupta and other companies controlled by him. ITAT also noted that assessee produced neither any documentary evidence to show genuinity nor any loan agreement entered into between the parties in respect of loan or financial transaction that were entered into with S. K. Gupta, or other companies controlled by him. ITAT noted that the assessee was named as one of the beneficiary of the transactions of accommodation entries provided by S. K. Gupta, which was undisputedly confessed by him and confirmed by both the lower authorities.

In respect of CIT(A) order, ITAT opined that when the sale/ purchase transaction of those shares were bogus or were merely accommodation entries, naturally the assessee would offer them as a sale-purchase transaction offering capital gain amount thereon. However, it was for the first appellate authority who was the highest authority under the Income Tax Act to decide the dispute of the assessee, decided this issue in such a blindfolded manner that he accepted such as shallow argument of the assessee. ITAT further opined that even transaction of purchase and sale of shares might also be part of accommodation entries, irrespective of the fact that profit or loss resulting therefrom was offered by the assessee as a capital gains. Naturally, an accommodation entry provider and the beneficiary would make an effort to sail through the investigating eyes of revenue by offering the result of this transaction under the head capital gain. ITAT stated that it was for the officers of the revenue to look into the real nature of the transactions and not to brush aside the fact that these were not normal transactions, but highly abnormal transactions, as accommodation entry providers were involved in such transactions.

ITAT further stated that the Ld. CIT (A) was also swayed by the fact mentioned by the assessee before him that all the transactions were entered by him through account payee cheques or banking channel. ITAT noted that We are also surprised that despite there was an allegation of accommodation entry provider providing those entries to the assessee, the Ld. CIT (A) believed them to be genuine transactions. The accommodation entries itself shows that the cheques are to be provided obviously through banking channel for unaccounted income of the beneficiaries.” ITAT further added that It is also very naïve to believe for the Ld. first appellate authority that if the transactions entered through banking channel, they should be accepted by the revenue as genuine. We are not aware of any such authority, which has stated so in case of such a blatant case of obtaining benefit of accommodation entries through unaccounted income.” ITAT elaborated that transaction through banking channel and transaction in cash did not have material difference except that when the entries were passed through banking channel, it ought to be complied with KYC norms. ITAT also opined that Use of banking channel makes an entry neither genuine nor ingenuine”.

Thus, ITAT appreciating Assessing Officer’s action held that Ld. CIT (A) grossly erred in holding that Assessing Officer did not offer cross-examination of the entry provider. ITAT further opined that as the assessee failed to provide the basic documents about the nature of the transactions and identity and creditworthiness of those parties regarding purchase and sale of shares, the assessee did not get right to ask for the cross-examination. ITAT noted that even if for a while it was assumed that there was no statement of Mr. S. K. Gupta, the onus was on the assessee to substantiate entries recorded in its books of accounts with credible evidences. It is not the case of the assessee that he provided the complete details and Assessing Officer did not make any effort in proving those details as false. Thus, ITAT mentioned that it is incorrect for the Ld. CIT appeal to say that Assessing Officer has obtained certain information through private enquiries and which have not been confronted to the assessee.”

ITAT observed that assessee was aware of impugned accommodation entries and the evidences placed were so conclusive that they ought not to be overlooked on technical and flimsy issue, which CIT(A) did. In respect of CIT(A)’s reliance on entries routed through banking channel and stating it as necessarily genuine in nature, ITAT opined that We are sorry to say such a statement”. Thus, ITAT reversed CIT(A)'s order and confirmed the addition made by Assessing Officer as unexplained income of the assessee obtained from accommodation entry provider Sh. S. K. Gupta. Thus, ITAT delivered the case in Revenue’s favour. [In favour of revenue] (Related Assessment year : 2004-05) – [Esha Securities (P) Ltd. v. DCIT [TS-402-ITAT-2017(DEL)] – Date of Judgement : 13.09.2017 (ITAT Delhi)]

High Court Sets-aside ITAT order; rejects application of ‘peak credit’ principle in respect of unexplained source of deposit and corresponding outgo

Assessee, a Chartered Accountant filed his return of income for the Assessment year 1995-96.  Assessing Officer noted that the assessee was holding two current accounts in the Union Bank of India, Karol Bagh, wherein sufficient cash and cheque deposits were made during the relevant period. It was also noted by Assessing Officer that assessee had floated one company Prem Chand Plantation Private Limited and purchased two other companies Anuradha Pharmaceuticals (P) Ltd. and Sai Fisheries (P) Ltd. AO also observed that the said three companies and other two companies viz., Zamindar Plantation (P) Ltd. and Kisan Plantation (P) Ltd. were all sold to one James Group. Assessing Officer issued notice u/s 148 in response to which assessee informed that the return filed by him should be treated as return filed in response to notice under section 148. Assessing Officer noted that assessee was not in a position to prove the source of deposits made in his bank accounts. AO observed that the cheques issued by assessee from his bank account were deposited in different bank accounts and these banks were further requested to provide the account opening forms of these concerned persons/beneficiaries to whom cheques were issued by the Assessee. AO issued summons to beneficiaries but almost all the beneficiaries were not found at the address given in their account opening forms. As regards the credit entries, wherever the assessee was able to show cheque issuance was to the same person the benefit of the principle of 'peak credit' was given to him by the Assessing Officer. However where the sources of deposit and cheque issuance remain unexplained and could not be squared off the same was added to the returned income. It was also observed by Assessing Officer from assessee's books that cheque worth Rs 90 lakhs were received from three companies Anuradha Pharmaceuticals, Sai Fisheries and Premchand Plantations. The unexplained peak credit of the cheques deposited and the unexplained cash deposits were also added to the total income of the assessee. On appeal, CIT(A) dismissed assessee's appeal. Further on appeal, ITAT held that the method of working out the addition adopted by the Assessing Officer and sustained by the CIT (A) wherein the cash entries and cheque entries have been treated differently is absolutely illogical and irrational and cannot be upheld. Further ITAT also disapproved Assessing Officer’s method of working out the peak credit separately for the cheques issued by the three companies. ITAT also observed that when assessee had himself deposited the unaccounted money in these accounts and issued cheques then the additions could not be made twice once on the basis of cash deposits and again on the basis of cheque transactions. Aggrieved, Revenue filed an appeal before Delhi High Court.

Before High Court, Revenue held ITAT’s approach as erroneous as ITAT had failed to appreciate that assessee had not provided an explanation for all the cheque deposits or even the cash deposits and also the corresponding cheques issued from his account. Revenue also contended that benefit of peak credit can be given only when square off of the deposits made against the cheques issued is possible and not when a source of deposit and the corresponding outgo remains unexplained.

Before High Court, assessee contended that once Revenue had accepted that the assessee was an accommodation entry provider there was no justification in working out the peak credit separately for the cash and the cheque transactions. Assessee held that all the cheque and cash credits in his own accounts should be consolidated and adjusted against all the outgo entries either by cash or cheque. The peak credit, thus, worked out should alone be taxed as that alone was the Assessee’s income.

High Court stated that there have been numerous cases which involve treatment of 'accommodation entries' High Court explained that an accommodation entry provider accepts cash from an assessee and arranges to have a cheque issued from his own account or some other account, usually of 'paper' or fake entities, to make it appear to be a loan or an investment in share capital. High Court held that where the assessee was unable to explain the source of such credit in his account the credit entry was to be treated as unexplained and the income is treated under section 68.

High Court stated that where the assessee discharges the initial onus of establishing the identity and creditworthiness of the credit provider and the genuineness of the transaction, the onus shifts to the revenue to show the contrary. Further High Court held that the assessee's case was different in nature as he was not denying he is an accommodation entry provider. High Court also observed that assessee made no bones of the fact that he either owned or floated ‘paper companies’ only for the purpose of being an accommodation entry provider. Further High Court also stated that assessee was not being able to explain the source of all the deposits or the ultimate destination of all the outgo from his accounts.

High Court stated that the concept of peak credit meant squaring up of the deposits in the account with the corresponding payments out of the account to the same person. High Court relied on Allahabad High Court ruling in Bhaiyalal Shyam Bihari wherein it was held that benefit of peak can be given only when the assessee owns up all the cash credits in the books of accounts. High Court stated that in the aforesaid case it was also held that as the amount of cash credits stood in the names of different persons which the assessee had all along been claiming to be genuine deposits, withdrawals/payments to different persons during the

previous years, the assessee was, therefore, not entitled to claim the benefit of peak credit. High Court also relied on Allahabad High Court ruling in Vijay Agricultural Industries wherein it was held that where an assessee was unable to explain the sources of deposits and the corresponding payments then he would not get the benefit of 'peak credit'.

High Court stated that legal position in respect of an accommodation entry provider seeking the benefit of 'peak credit' appears to have been totally overlooked by the ITAT in the present case. High Court further stated that, if assessee wanted to avail the benefit of the 'peak credit' had to make a clean breast of all the facts within his knowledge concerning the credit entries in the accounts. High Court held that, assessee should explain with sufficient detail the source of all the deposits as well as the corresponding destination of all payments. High Court also held that assessee should be able to show that money has been transferred through banking channels from the bank account of creditors to those of the assessee, the identity of the creditors and that the money paid from the accounts of the assessee has returned to the bank accounts of the creditors. Thus High Court remarked that The Assessee has to discharge the primary onus of disclosure in this regard.”

Thus High Court held that, in the given case Assessing Officer insisted that the additions made by him to the returned income of the Assessee should be sustained. High Court observed that, peak credit worked out by the assessee was on the basis that the principle of peak credit would apply, despite failure on part of the assessee to explain each of the sources of the deposits and the corresponding destination of the payment without squaring them off. High Court concluded that the same was not permissible in law as affirmed by Allahabad High Court in aforementioned cases.

High Court remarked that, the ITAT went merely on the basis of accountancy, overlooking the settled legal position that peak credit is not applicable where deposits remain unexplained under Section 68 of the Act” High Court thus ruled in favour of Revenue. - [CIT v. D.K.Garg [TS-334-HC-2017(DEL)] – Date of Judgement : 04.08.2017 (Del.)]

Creditworthiness and genuineness of Share money depends also on nature of relationship between parties, object, terms and quantum of investment, types of investor, creditworthiness of recipient, etc. - Inquiries to bring on record and establish that the other parties had given accommodation entries and the money, i.e., the share application money was assessee’s own undisclosed income

Creditworthiness or genuineness of transaction depends on whether two parties are related or known to each, manner or mode by which parties approached each other, whether transaction was entered into through written documentation to protect investment, whether investor professes and was an angel investor, quantum of money, creditworthiness of recipient, object and purpose for which payment/investment was made, etc. Certificate of incorporation of company, payment by banking channel, etc. cannot in all cases tantamount to satisfactory discharge of onus. Assessee was a private limited company and had received from other companies substantial amount of share application money of Rs. 63.80 lakhs and Rs. 75.60 lakhs in two consecutive years. Other than share application forms, no other agreement between assessee-company and third companies had been placed on record - Persons behind these companies were not produced by assessee. On other hand, assessee-company adopted non-cooperative attitude before Assessing Officer once they came to know about directed enquiry and investigation being made - Whether evasive and transient approach before Assessing Officer was limpid and perspicuous and, therefore, addition made in respect of impugned amount was to be upheld. [In favour of revenue] (Related Assessment years : 2002-03 and 2003-04) – [CIT v. N.R. Portfolio (P) Ltd. (2014) 264 CTR 258 : 222 Taxman 157 : 42 taxmann.com 339 (Del.)]

Amount received by assessee from accommodation entry providers in garb of share application money, was to be added to its taxable income under section 68; held that in view of the link between the entry providers and incriminating evidence, mere filing of PAN number, acknowledgement of income tax returns of the entry provider, bank account statements etc. was not sufficient to discharge the onus.

For relevant assessment year, assessee filed its return declaring loss. Said return was processed under section 143(1). Subsequently, Assessing Officer received information from Investigation Wing that assessee had obtained accommodation entries in garb of share application monies. In order to examine genuineness and creditworthiness of companies which gave entries to assessee, Assessing Officer issued summons to two persons namely, ‘M’ and ‘R’ who did not appear before him. Subsequently, assessee filed a letter with Assessing Officer along with affidavits of ‘R’ and 'M' in which both of them had stated that transactions with assessee were genuine and earlier statements recorded from them by investigation wing were given under pressure - Assessing Officer did not accept those affidavits and made certain addition to assessee’s income under section 68. Tribunal, however, taking a view that there was no dispute about identity of shareholders namely ‘M’ and ‘R’, deleted addition made by Assessing Officer. On revenue’s appeal, it was noted that both ‘M’ and ‘R’ had admitted before Additional Commissioner (Investigation) that they were acting as accommodation entry providers. They had also given a list of 22 companies in which they were operating accounts. It was also apparent that out of 22 companies whose names figured in information given by them to investigation wing, 15 companies had provided so-called ‘share subscription monies’ to assessee. On facts, there was specific involvement of assessee-company in modus operandi followed by ‘M’ and ‘R’. Therefore, impugned order passed by Tribunal deleting addition was to be set aside. [In favour of revenue] (Related Assessment year : 2000-01) – [CIT v. NovaPromoters & Finlease (P) Ltd.(2012) 342 ITR 169 : 252 CTR 187 : 206 Taxman 207 : (2012) 18 taxmann.com 217 (Del.)]

Failure of assessee to disclose at time of assessment that it had received share capital from bogus companies providing accommodation entries, was sufficient to initiate reassessment

The assessee company filed a return of income which was accepted under section 143(1). The Assessing Officer issued a notice under section 148 after a period of four years from end of the relevant assessment year seeking to reopen the assessment on ground that a statement was recorded from one ‘M’ under section 131 in which he admitted before the investigating authorities that he was carrying on the business of providing accommodation entries for commission through bogus companies in which he was a director and the assessee had received share capital from some of those companies. The assessee's objections to initiation of reassessment proceedings were rejected. On writ:

On a careful consideration of matter it is found that the assessment was properly re-opened. The assessee company received share capital of Rs. 67,40,000 during the previous year relevant to the assessment year 2004-05. The share capital was received from several companies.

The return filed by the assessee was not scrutinized but was accepted under section 143(1). The reasons recorded for reopening the assessment show that they were recorded on the basis of material gathered by the Investigation Wing of the Department and forwarded to the Assessing Officer. The statement of ‘M’ before the Investigation Wing refers to the fact that he was a Director in six companies. Out of these six companies the assessee received share capital from three companies during the year under consideration. ‘M’ has also stated that these companies do not carry on any real business but carry on only adjustment transactions and that those companies did not have any employee and were not maintaining any books of account. Earlier, he has narrated the modus operandi followed by him in carrying on the business of giving accommodation entries for a commission. The statement also refers to the bank accounts particulars. He has admitted in the statement that he took 25 paise commission for giving the accommodation entries. The statement of ‘M’ and the material gathered by the Investigation Wing in relation to the parties who gave accommodation entries were before the Assessing Officer when he recorded reasons for re-opening the assessment and this is clear from the first paragraph of the reasons recorded.

The above facts show that the reasons recorded by the Assessing Officer were not a pretence. The reasons were germane to the prima facie belief reached by the Assessing Officer that income chargeable to tax has escaped assessment by reason of the failure of the assessee to furnish full and true particulars at the time of original assessment. It may be true that the assessee received the share capital through account payee cheques. It may also be true that the receipt of share application monies was otherwise supported by the necessary documents. There may not be any dispute about the identity of the companies which subscribed to the share capital of the assessee. However, the material that was present before the Assessing Officer, on the basis of which he recorded reasons and re-opened the assessment, throw considerable doubt on the veracity, correctness, completeness and truth of the particulars furnished by the assessee at the time of the original assessment. This is particularly so, having regard to the statement of 'M' in which he admitted to having carried on the business of providing accommodation entries through companies in which he was a director. The assessee has received share capital from some of these companies. It is well settled that at the time of issuing notice under section 148, the Assessing Officer is only required to reach a tentative or prima facie belief regarding escapement of income and that requirement is satisfied in the instant case. [Para 9]

The argument advanced on behalf of assessee that the name of the assessee is not specifically mentioned in the statement of ‘M’ and, therefore, the material gathered by the Investigation Wing and which was available to the Assessing Officer when he recorded reasons for re-opening the assessment did not have any nexus with the formation of his belief that income chargeable to tax had escaped assessment cannot be accepted. The required nexus is furnished by the reference to the names of at least three companies in which ‘M’ was a director, through which, inter alia, he was admittedly carrying on the business of providing accommodation entries for commission. These companies had subscribed for the shares issued by the assessee. Thus not only was the required nexus provided, but there was also material before the Assessing Officer to show that the assessee company had not furnished all particulars necessary for its assessment fully and truly. Accordingly this argument is rejected.

In view of the foregoing, it is opined that the notice issued by the Assessing Officer under section 148 was valid and well within jurisdiction. He had reason to believe that income chargeable to tax had escaped assessment because of the failure of the assessee company to furnish fully and truly all material particulars necessary for its assessment. There is no merit in the writ petition which is hereby dismissed. – [Money Growth Investment & Consultants (P) Ltd. v. ITO (2012) 207 Taxman 191 : 21 taxmann.com 438 (Del.)]

Initiation of reassessment proceedings on basis of information received from Investigation wing that assessee had received certain amount from a person working as on accommodation entry provider, was to be upheld

Assessee filed its return of income which was processed under section 143(1). Subsequently, Assessing Officer issued a notice under section 148 seeking to reopen assessment. In reasons recorded, Assessing Officer mentioned that he had received information from Investigation Wing of department that assessee had received certain amount by way of a cheque from ‘S’ Ltd, working as an accommodation entry provider. Since assessee was not in a position to deny that material relied upon by Assessing Officer at time of recording reasons for reopening assessment did not contain entry linking ‘S’ Ltd. with assessee, issue of notice under section 148 on prima facie belief that income chargeable to tax had escaped assessment must be upheld as valid. [In favour of revenue] (Related Assessment year : 2004-05) – [Rajat Export Import India (P) Ltd. v. ITO (2012) 341 ITR 135 : 252 CTR 307 : 206 Taxman 50 : 18 taxmann.com 311 (Del.)]