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2015 Supreme(Del) 390
High Court of Delhi
S. RAVINDRA BHAT & R.K. GAUBA, JJ.
The Commissioner of Income Tax-II – Appellant
Versus
M/s. Jansampark Advertising & Marketing (P) Ltd. – Respondent
ITA No. 525 of 2014
Decided On : 11-03-2015
For the Appellant : Kamal Sawhney, Sr. Standing Counsel.
For the Respondent:R.M. Sinha, Rajiv Saxena, Shashwat Bajpai, Advocates.
The initial burden of proof is on the assessee to explain the nature and source of the credit entries. The assessee must provide proof of the identity, creditworthiness, and genuineness of the transactions. The assessing officer is obligated to conduct a proper inquiry and reach findings on facts. The appellate authorities are duty-bound to ensure that effective inquiry is carried out, particularly in the face of allegations by the Revenue.
Headnote:
Income Tax - Assessment of unexplained credit u/s 68 of Income Tax Act - 68 - Summary: The court examined the validity of the assessment under Section 68 of the Income Tax Act, 1961, in respect of unexplained credit. The court found that the initial burden of proof is on the assessee to explain the nature and source of the credit entries. The court emphasized the need for the assessee to provide proof of the identity, creditworthiness, and genuineness of the transactions. The court also highlighted the obligation of the assessing officer to conduct a proper inquiry and reach findings on facts. The court held that the appellate authorities are duty-bound to ensure that effective inquiry is carried out, particularly in the face of allegations by the Revenue. The court directed the matter of assessment to be remitted to the CIT (Appeals) for fresh consideration in accordance with law.
Fact of the Case:
The assessee filed its return of income for AY 2004-05, declaring income of Rs. 3,180. The Assessing Officer (AO) re-opened the case under Section 147 of the Income Tax Act, alleging that the assessee had received accommodation entries from entry providers. The AO treated the amount of 71 Lacs as unexplained credit and added it to the income of the assessee. The CIT (Appeals) allowed the appeal, deleting the additions made by the AO, relying upon CIT v. Lovely Exports Pvt. Ltd. The Revenue's appeal to the ITAT was unsuccessful.
Finding of the Court:
The court found that the initial burden of proof is on the assessee to explain the nature and source of the credit entries. The court emphasized the need for the assessee to provide proof of the identity, creditworthiness, and genuineness of the transactions. The court also highlighted the obligation of the assessing officer to conduct a proper inquiry and reach findings on facts. The court held that the appellate authorities are duty-bound to ensure that effective inquiry is carried out, particularly in the face of allegations by the Revenue. The court directed the matter of assessment to be remitted to the CIT (Appeals) for fresh consideration in accordance with law.
Issues: Validity of the assessment under Section 68 of the Income Tax Act, 1961; Obligation of the assessee to explain the nature and source of credit entries; Duty of the assessing officer to conduct a proper inquiry and reach findings on facts; Obligation of the appellate authorities to ensure effective inquiry is carried out.
Ratio Decidendi: The initial burden of proof is on the assessee to explain the nature and source of the credit entries. The assessee must provide proof of the identity, creditworthiness, and genuineness of the transactions. The assessing officer is obligated to conduct a proper inquiry and reach findings on facts. The appellate authorities are duty-bound to ensure that effective inquiry is carried out, particularly in the face of allegations by the Revenue.
Final Decision: The matter of assessment is remitted to the CIT (Appeals) for fresh consideration in accordance with law.
R.K. Gauba, J.
1. This appeal under Section 260-A of Income Tax Act, 1961 assails the order dated 14.06.2013 passed by Income Tax Appellate Tribunal (hereinafter referred to as “the ITAT”) in appeal No. 4839/Del/2009 respecting the respondent (“the assessee”) for the assessment year (AY) 2004-05. The following substantial question of law was framed by order dated 25.11.2014:-
“2.1 Whether in the facts and circumstances of the case ld. ITAT was correct in allowing the appeal of the assessee in regard to addition of Rs. 71,00,000/- on account of unexplained credit u/s 68 of the Income Tax Act.
2.2 Whether in the facts and circumstances of the case ld. ITAT was correct in allowing the appeal of the assessee in regard to addition of Rs. 1,42,000/- on account of commission paid on entry taken from entry provider.”
2. The assessee had filed its return of income for AY 2004-05 on 01.11.2004 declaring income of Rs. 3,180/-. The said original return was accepted. It is stated that some time in 2007 the Assessing Officer (AO) was in receipt of information from DIT (Investigation), New Delhi that the assessee had been in receipt of accommodation entries from the entry providers. It is the averment of the Revenue that –
“during the course of the enquiries conducted by the investigation wing of the department it was concluded that most of the entry operators are charging commission @ 2% for giving this accommodation approach to another person and hand over the cash plus commission and take cheques/DDs/Pos. The cash is deposited by the entry operator in a bank account either in his own name or in the name of the relative/friends or other person hired by him for the purpose of opening bank account. The other person (in whose name the account is opened) only signs the blank cheque book and hands over the same to main entry operators. The entry operator then issues cheques/DDs/Pos in the name of the beneficiary from the same account in which the funds are transferred through clearing in two or more stages. The beneficiary in turn deposits these instruments in his bank accounts and the money comes to his regular books of accounts in the forms of gift, share application money/share capital/unsecured loans etc. through banking channel. Since the funds have come through banking channel in the books of beneficiary these apparently look genuine.”
3. Having reasons to believe that income had escaped assessment, the AO re-opened the case for AY 2004-05 under Section 147 of Income Tax Act and issued notice under Section 148 on 18.04.2007. In response to the notice, the assessee filed a copy of the return that had been submitted on 01.11.2004.
4. During the assessment proceedings, thus re-opened, the AO noticed that the assessee had raised share capital from the following parties to the extent indicated against each:-
| 1. | M/s Labh - Tronics Overseas (P) Ltd. | 5,00,000/- |
| 2. | M/s F.N.S. Consultancy | 7,00,000/- |
| 3. | M/s C.V. Metal Powder | 5,00,000/- |
| 4. | M/s Maestro Mktg.(P) Ltd. | 4,00,000/- |
| 5. | M/s Dignity Finvest (P) Ltd. | 4,00,000/- |
| 6. | M/s Ethnic Creation (P) Ltd. | 3,00,000/- |
| 7. | M/s M.V. Marketing (P) Ltd. | 3,00,000/- |
| 8. | M/s Akshay Sales (P) Ltd. | 5,00,000/- |
| 9. | M/s S.G.C. Publishing (P) Ltd. | 10,00,000/- |
| 10. | M/s Maestro Mktg. & Advertising (P) Ltd. | 13,00,000/- |
| 11. | M/s Fair N Square Exports (P) Ltd. | 5,00,000/- |
| 12. | M/s Jain Projects & Fin. Consultants (P) Ltd. | 7,00,000/- |
|
| TOTAL | 71,00,000/- |
5. It is the case of the Revenue that on examination of the details, and as per the information collected on the basis of investigation carried out, it was found that share capital had been received from the following three entry operators who are allegedly engaged in the business of giving accommodation entries:
a. Maestro Mktg. & Advertising (P) Ltd.
b. Fair N Square Exports (P) Ltd.
c. Jain Pro
