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I-T - Reopening on account of seizure of unaccounted cash is valid if AO applies his mind & analyses information and bank statements: ITAT

By TIOL News Service

NEW DELHI, MARCH 08, 2018: The issue is - Whether reopening of proceedings on account of unaccounted cash is valid if AO applies his mind, analyses the information received with bank statement of company, return and statement of the director and not merely reproduces the report of the investigation wing. YES is the answer.

Facts of the case

The assessee company had filed return for relevant AY. Subsequently the notice u/s 148 was issued to the assessee on the ground that as per the report of the investigation wing the assessee company had introduced unaccounted cash/money to the tune of Rs. 2.55 crores (approx) in its books for providing equivalent amount of bogus accommodation entries. During the course of reassessment proceedings the assessee was asked to explain the large amount of deposit in the bank account, which was not reflected in the books of accounts of the assessee company. In response the assessee submitted that one of its Ex Director had operated the impugned account with state bank of India and assessee was ignorant of all these transactions. It was neither the beneficiary nor instrumental in arranging these entries or transactions. The said Ex director received commission from providing such accommodation entries. Bute AO noted that assessee had failed to produce any supporting evidences to support its submission. The AO made the addition of Rs.2,54,93,000/- in the hands of the assessee on protective basis. The commission income at the rate of 1% of the accommodation entry was also added on substantive basis in the hands of the assessee. On appeal, CIT(A) deleted the addition of Rs. 2,45,53,000/-. With respect to the commission income, he held that commission income had been received by Ex director Pradeep Jindal in his individual capacity. Aggrieved Revenue filed appeal before Tribunal. The aggrieved Assessee filed appeal on the ground that the initiation of proceedings u/s 147 of the act and further completion of assessment u/s 143(3)/147 of the act was without satisfying the statutory precondition is envisaged in the aforesaid section and was without jurisdiction and was liable to be quashed as such.

On appeal, Tribunal held that,

++ basis of the reopening was the enquiry made by the Director of Investigation on various persons who were indulged in providing accommodation entries etc. It was noted by the AO that assessee company was engaged by an entry operator who was introducing unaccounted in the bank account of the assessee and further from that particular bank account giving accommodation entries to various parties. From 01.04.1999 to 31.03.2000 such accommodation entries were equivalent to the tune of Rs. 2.55 crores. Based on this reason the AO also obtained the copy of the bank statement of the assessee from SBI Shakti Nagar Branch. Therefore, AO had applied his mind on the information-received form DIT. The AO verified the copy of the bank account with the copy of statement of Shri Pradeep Jindal made before the DIT. The director of the assessee company himself stated that he was an entry operator and from bank account of Precision Agencies Pvt. Ltd (assessee) he was providing accommodation entries. The bank account of the assessee with State Bank of India also corroborates these facts. In view of this it could not be said that AO had not applied his mind to the information received from the Investigation Wing. In the present case, the AO has not merely reproduced the report of the investigation wing but has also linked with bank account of the assessee, return of the assessee and statement of the director of the assessee company. Hence it was decided to dismiss additional ground filed by the assessee challenging the reopening proceedings by the AO;

++ director of the company Mr. Pradeep Jindal had confessed before the Investigation Wing that he operated the bank account and subsequently, management share holding have been changed. On query by the AO the assessee stated that above bank account has been maintained by Mr. Pradeep Jindal fraudulently without knowledge and approval of Board of Directors and share holders and the transaction entered into these bank accounts did not appear in the books of account of the assessee company;

++ it was however was unusual that assessee though claiming to have been cheated by Pradeep Jindal had neither made any complaint against him or the banker but has constantly pleaded before the authorities that the bank account has been opened by Sh. Pradeep Jindal and also operated by him without the knowledge of the directors as well as the shareholders. Firstly, the bank account of an assessee company can be opened only with all the signatures of the directors of the company, instructions of operating such bank account supported by the resolution of the board of directors, certified copy of which is provided to the banker. On such resolution, the common seal of the company is required to be affixed. Along with these the permanent account card of the assessee as well as the copy of the memorandum and articles are required to be provided. After verifying all these details the bank account of the assessee is opened;

++ when assessee says that the bank account does not belong to the company the higher onus lies on the assessee to show that assessee has not opened any bank account. This can be proved only by obtaining the copy of account opening form and complete details submitted to the banker. The assessee does not want to make any effort to bring that material on record. In fact assessee also does not deny that Mr. Pradeep Jindal was the director of the company. It is also not mentioned by the assessee that how assessee had entered into the commercial dealing with that gentleman by purchasing the shares of the company as well as taking over the company owned by the gentleman therefore it is apparent that assessee/directors know Mr Pradeep Jindal Further, even if the version of the assessee company is believed since 2007 to 2018 the assessee has not taken any steps against Mr. Pradeep Jindal or the bank. Such inactiveness on the part of the assessee also speaks loud. Therefore, instead of discharging its own onus the assessee is throwing onus back to the AO without any cogent reason and for its own failure to make proper due diligence;

++ merely making the statement without making any concrete effort of proving that there is a fraud committed on the assessee, it cannot escape the liability of the taxation. Furthermore tax liability can also not be fastened upon the assessee without there being a real income in the hands of the assessee. The AO as well as the CIT appeal has made the addition, deleted the addition, or confirmed it without properly verifying the facts of the case. Unless the assessee comes out with the clean hands before the AO it cannot escape the taxation of the whole amount. Therefore the AO was directed to make complete examination of the bank accounts by obtaining necessary information from the bankers by issue of summons under section 131 of the Income Tax Act and identify the beneficiaries with proper documentation and evidences and they may be taxed on the sum by application of the provisions of section 150 (1) of the Act, if possible. In the result it was decided to set aside appeal back to the file of the AO to carry out necessary Inquiries and then to decide about the taxability of the sum involved in the bank account of the assessee with state bank of India opened and operated by Sh. Pradeep Jindal in the name of the assessee company. Thereafter the AO may decide about the taxability of the commission income on such accommodation entries. In the result all the 5 appeals of the assessee and revenue were allowed for statistical purposes.

(See 2018-TIOL-355-ITAT-DEL)