Commissioner Of Income Tax Through: Mr.deepak Chopra, Advocate v. Nova Promoters & Finlease (P) Ltd. …

* IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA No.342 of 2011 Reserved on :December 12, 2011 Date of Decision : February 15, 2012. COMMISSIONER OF INCOME TAX Through: Mr.Deepak Chopra, Advocate .... Appellant VERSUS …..Respondent NOVA PROMOTERS & FINLEASE (P) LTD. …..RespondentThrough Mr. C.S.Aggarwal, Sr.Advocate with Mr.Prakash Kumar and Mr.Arta Trana Panda, Advocates. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V. EASWAR 1.Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporters or not ? Yes. 3. Whether the judgment should be reported in the Digest? Yes. R.V. EASWAR, J.: This is an appeal filed by the Commissioner of Income Tax under Section 260A of the Income Tax Act,1961 (“the Act” for short) against the order passed by the Income Tax Appellate Tribunal (“Tribunal”, for short) on 14[th] May, 2010 in ITA No.3368/Delhi/2009, relating to the assessment year 2000-2001. Page 1 of 46 2. The assessee is a private limited company. In respect of the assessment year 2000-2001, for the previous year ended on 31[st] March, 2000, it filed a return of income declaring loss of Rs.2,800/-. The return was processed under Section 143(1) and the loss was accepted. Subsequently, the Assessing Officer received a letter dated 3[rd] March, 2006 from the Director of Income Tax (Investigation), New Delhi which furnished detailed information regarding entry operators/accommodation providers. The letter informed the Assessing Officer that there were 16 entry operators who had given accommodation entries to several persons of which the assessee was also one. There were also statements recorded from persons confirming the facts. According to the information contained in the letter, the assessee had obtained accommodation entries from these proceedings in the garb of share application monies. The total amount received from such persons as share application monies was Rs.1,18,50,000/- during the relevant year. 3. Based on the aforesaid letter, the Assessing Officer issued notice under Section 148 of the Act on 22[nd] September, 2006 reopening the assessment of the assessee and called upon it to file return of income in response to the notice. The assessee stated that the return filed by it earlier may be treated as compliance with the notice. It also requested the Assessing Officer to furnish the reasons for reopening the assessment, which were provided under cover of letters dated 1[st] June, 2007 and 14[th]June, 2007. Page 2 of 46 4. In the course of the reassessment proceedings pursuant to the notice issued under Section 148, the Assessing Officer issued a questionnaire to the assessee. In order to comply with the same the assessee sought for the documents/material in the possession of the Assessing Officer and also requested him to produce the person incharge of the 16 companies for cross examination with regard to the contents of the statements recorded from them. In response to the assessee’s request, the Assessing Officer provided the assessee with the following:- “1. Copy of statement of Sh. Rajan Jassal S/o Sh. Surinder Kr. Jassal R/o WZ, 134 Plot No. 170, Vishnu Gareden, New Delhi. –2. Copy of statement of Sh. Mukesh Gupta S/o Sh. R.D.Gupta R/o WZ-414, Naraina Village, New Delhi. 3. Printed contents of CD received from Investigation Wing showing transaction made with various parties. 4. Copy of letters written to Addl. Commissioner of Income Tax Unit-I. New Delhi, by Sh. Mukesh Gupta and Sh. Rajan Jassal claiming various Benami accounts maintained by them.” 5. In order to examine the genuineness and the creditworthiness of the companies which gave the entries to the assessee, the Assessing Officer issued summons to Mukesh Gupta and Rajan Jassal on 23[rd] October, 2007 and 26[th] November, 2007 respectively. It appears that the Assessing Officer had also issued summons to the companies on 14[th] September, Page 3 of 46 –2. Copy of statement of Sh. Mukesh Gupta S/o Sh. R.D.Gupta R/o WZ-414, Naraina Village, New Delhi. 3. Printed contents of CD received from Investigation Wing showing transaction made with various parties. 4. Copy of letters written to Addl. Commissioner of Income Tax Unit-I. New Delhi, by Sh. Mukesh Gupta and Sh. Rajan Jassal claiming various Benami accounts maintained by them.” 5. In order to examine the genuineness and the creditworthiness of the companies which gave the entries to the assessee, the Assessing Officer issued summons to Mukesh Gupta and Rajan Jassal on 23[rd] October, 2007 and 26[th] November, 2007 respectively. It appears that the Assessing Officer had also issued summons to the companies on 14[th] September, Page 3 of 46 2007. He has recorded in the assessment order that some of the summons sent to the companies were received back unserved and the other summons remained uncomplied with. The summons issued to Mukesh Gupta and Rajan Jassal were served but remained uncomplied with. 6. In the meantime, it would appear that the assessee had raised objections to the reopening to the assessment which were disposed of by the Assessing Officer vide letter dated 19[th] November, 2007. The further objections raised on 26[th] November, 2007 were also disposed of by the Assessing Officer vide order dated 28[th] November, 2007. 7. Since there was no response to the summons which were served and some of them had been returned unserved, the Assessing Officer sent an Inspector of Income Tax to the addresses to which summons were issued. The Inspector reported that no such person or company was available or existing at the addresses to which summons were issued. On the basis of the report of the Inspector, the Assessing Officer issued notice to the assessee on 23[rd] October, 2007 to produce the persons and companies from whom it had received share applications monies. This also was not complied with by the assessee. On 5[th] December, 2007 the assessee filed a letter with the Assessing Officer along with the affidavits of Rajan Jassal and Mukesh Gupta in which both of them had stated that the transactions with the assessee were genuine and the earlier statements recorded from them by the investigation wing were given under pressure. Page 4 of 46 A copy of this letter is filed at page 6 of the paper book filed by the learned counsel for the assessee. 8. On the aforesaid facts, the Assessing Officer came to the conclusion that the independent enquiries carried out by him disclosed that the assessee was unable to prove the genuineness of the transactions with the companies and that it also proved that the assessee company had introduced its own monies through non-existing companies using the banking channel in the shape of share application monies. He accordingly invoked Section 68 of the Act and added the amount of Rs.1,18,50,000/- to the income of the assessee. 9. In addition, the Assessing Officer also made an addition of Rs.2,96,250/- representing the commission paid to the parties who facilitated the transactions. He noted that normally the commission in such transactions varied from 2% to 3%. He, therefore, adopted the average of 2.5% which came to Rs.2,96,250/- on the amount of Rs.1,18,50,000/-. This amount was also added to the income of the assessee, making the total addition to Rs.1,21,71,250/-. 10. The assessee filed an appeal before CIT(Appeals) and challenged the jurisdiction of the Assessing Officer to reopen the assessment under Section 147 and also challenged the addition of Rs.1,21,71,250/-. The CIT(Appeals) rejected the assessee’s contention against the validity of the reopening of the assessment. He observed that the information received Page 5 of 46 10. The assessee filed an appeal before CIT(Appeals) and challenged the jurisdiction of the Assessing Officer to reopen the assessment under Section 147 and also challenged the addition of Rs.1,21,71,250/-. The CIT(Appeals) rejected the assessee’s contention against the validity of the reopening of the assessment. He observed that the information received Page 5 of 46 from the investigation wing of the department was not general or vague, as claimed by the assessee, but was specific and pertained to the transactions with the assessee. He further noted that the information set out the name of the person issuing the cheque, the date and amount thereof etc. He, therefore, held that the Assessing Officer was justified in forming the prima facie belief that income chargeable to tax had escaped assessment. The challenge to the jurisdiction of the Assessing Officer to reopen the assessment was thus rejected. 11. As regards the merits, the CIT(Appeals), taking note of the statement of the assessee that the affidavits from Rajan Jassal and Mukesh Gupta, who were Directors in the three companies as well as the affidavits of Raj Kumar, Harish Kumar and Pramod Kumar who were the directors in other companies which provided the share capital, were not considered by the Assessing Officer, directed the Assessing Officer to examine the contents of the affidavits and verify the veracity and genuineness thereof. The Assessing Officer was also directed to examine the genuineness of the transactions. 12. The Assessing Officer submitted a remand report dated 30[th] April, 2009 which is reproduced in pages 41 to 45 of the order of the CIT(Appeals) and for the sake of brevity it is not reproduced here. However, we may briefly notice the findings recorded in the remand report which are as under:- Page 6 of 46 (a)The assessee did not produce the deponents of the affidavits despite repeated opportunities and, therefore, they could not be examined by him. despite repeated opportunities and, therefore, they could not be examined by him. (b)The affidavits were not sworn to by the deponents and, therefore, they are not admissible in evidence. therefore, they are not admissible in evidence. (c)All the deponents had earlier given statements under Section 131 of the Act before the Addl. Director of Income Tax (Investigation) in which they had admitted that they were not doing any actual business but were only providing entries. 131 of the Act before the Addl. Director of Income Tax (Investigation) in which they had admitted that they were not doing any actual business but were only providing entries. (d)The summons issued to the principal officers of the companies who contributed the share application monies to the assessee were not complied with and the independent enquiry made by the Inspector also resulted in the finding that no such companies existed at the addresses furnished by the assessee. companies who contributed the share application monies to the assessee were not complied with and the independent enquiry made by the Inspector also resulted in the finding that no such companies existed at the addresses furnished by the assessee. (e) To verify the genuineness of the transactions as directed by the CIT (Appeals) summons were issued to the principal officer of the companies, namely, Mukesh Gupta, Rajan Jassal, Raj Kumar and Pramod Kumar on 24[th] April, 2009 (in the remand proceedings) and these summons were also not complied with and none of the persons attended the proceedings. the CIT (Appeals) summons were issued to the principal officer of the companies, namely, Mukesh Gupta, Rajan Jassal, Raj Kumar and Pramod Kumar on 24[th] April, 2009 (in the remand proceedings) and these summons were also not complied with and none of the persons attended the proceedings. Page 7 of 46 On the basis of the above findings, the Assessing Officer reported that the transactions have not been proved to be genuine and they were only instruments used by the assessee to mislead the income tax authorities. Page 7 of 46 On the basis of the above findings, the Assessing Officer reported that the transactions have not been proved to be genuine and they were only instruments used by the assessee to mislead the income tax authorities. 13. The CIT(Appeals) after considering the facts of the case, the statements of the assessee, the remand report of the Assessing Officer as well as the rejoinder of the assessee to the remand report, concluded that the Assessing Officer was not justified in making the addition of Rs.1,18,50,000/- under Section 68 of the Act. Consequently, he also deleted the addition of Rs. 2,96,250/- made for commission paid to the entry providers for obtaining the entries, which had been added under Section 68. In arriving at this conclusion the CIT(A) recorded the following findings: - (a)The Assessing Officer has disregarded the documentary evidence adduced by the assessee such as confirmation from the share applicants, their income tax file numbers, certificate of incorporation of those companies, records of the Registrars of Companies (ROC) generated from the website, affidavits filed in support of the fact of advancing share applications monies etc. evidence adduced by the assessee such as confirmation from the share applicants, their income tax file numbers, certificate of incorporation of those companies, records of the Registrars of Companies (ROC) generated from the website, affidavits filed in support of the fact of advancing share applications monies etc. (b) The Income Tax Inspector, who reported that the share applicant companies did not exist at the given addresses, did applicant companies did not exist at the given addresses, did Page 8 of 46 not make any further effort to find out the latest whereabouts of the companies. The Assessing Officer could have found the latest addresses through the postal department. (c) Even though the summons served on some of the investor companies remained uncomplied with, the Assessing Officer did not initiate any action against them for non-compliance, despite possessing enough powers to enforce their attendance. companies remained uncomplied with, the Assessing Officer did not initiate any action against them for non-compliance, despite possessing enough powers to enforce their attendance. (d)The subscription for the shares were received through cheques. cheques. (e) The Investor-companies were active as per the website of the Ministry of Corporate Affairs and they were duly registered with ROC. the Ministry of Corporate Affairs and they were duly registered with ROC. (f)Those companies were also having their income tax PAN numbers and regularly filed returns of income. numbers and regularly filed returns of income. (g) No material was brought on record by the Assessing Officer to show that the affidavits filed by the Directors of the investor- companies were not genuine. No enquiries were conducted about the contents of the affidavits. Even during the remand proceedings the Assessing Officer did not make any attempt to discredit the affidavits and merely stated that the summons issued to the deponents on 24[th] April, 2009 (in to show that the affidavits filed by the Directors of the investor- companies were not genuine. No enquiries were conducted about the contents of the affidavits. Even during the remand proceedings the Assessing Officer did not make any attempt to discredit the affidavits and merely stated that the summons issued to the deponents on 24[th] April, 2009 (in Page 9 of 46 the course of the remand proceedings) remain uncomplied with. The result is that the contents of the affidavits have not been disproved. It also shows that the parties (deponents) were present at the given addresses against whom action could have been taken. Page 9 of 46 the course of the remand proceedings) remain uncomplied with. The result is that the contents of the affidavits have not been disproved. It also shows that the parties (deponents) were present at the given addresses against whom action could have been taken. (h) No material was brought on record by the Assessing Officer independently of the information received from the investigation wing of the Income Tax Department to show that the monies represented the assessee’s undisclosed income. independently of the information received from the investigation wing of the Income Tax Department to show that the monies represented the assessee’s undisclosed income. After recording the aforesaid factual findings, the CIT (Appeals) embarked upon a dissertation of the legal position with regard to additions made under Section 68 of the Act, including the order of the Supreme Court in CIT vs. Lovely Export, 216 ITR 198 SCand the judgment of this Court inDivine Leasing and Finance Limited, (2008) 299 ITR 268. On the basis of the authorities referred to by him, the CIT (Appeals) held that in the case of money received towards share capital only the identity of the share holders needs to be proved and once that is established and it is also shown that the money did in fact come from them, it is not for the assessee to prove as to how the share applicants came to be in possession of the money. In this view of the matter, he concluded as follows: - “Inthe light of the above discussion, I am inclined to agree with the arguments and evidences provided by the appellant Page 10 of 46 to substantiate that the transaction regarding Share Application Money received by it were genuine transactions and the same were not In accommodation entries. I also do not find any evidence collected by the A.O. Which could prove otherwise. Accordingly, the AO was not justified in treating the amount of share application money received by the appellant as its undisclosed income. In view of our aforesaid discussion, I delete the addition of 1,18,50,000/-, made by the AO u/s 68 of the I.T. Act, 1961.” 14. As consequence to the above, the addition of Rs.2,96,250/- made for commission paid to the entry providers was also deleted by the CIT(Appeals). 15. The revenue filed an appeal before the Tribunal in ITA No.3368/Del/2009 challenging the decision of the CIT (Appeals) to delete the addition of Rs.1,18,50,000/-. The assessee preferred a cross objection in CO.No.63/Delhi/2010 challenging the decision of the CIT (Appeals) upholding the validity of the reopening of the assessment under Section 147/148 of the Act. The Tribunal passed a common order disposing of the appeal of the revenue and the cross objections filed by the assessee passed on 14[th] May, 2010. In paragraphs 28 to 30 of the said order, the Tribunal held, dismissing the cross objections filed by the assessee, that the Assessing Officer had rightly assumed jurisdiction under Section 147 of the Act to reopen the assessment. It was observed that the reason to believe that income chargeable to tax had escaped assessment had a rational nexus with the material placed before the Assessing Officer by Page 11 of 46 the investigation wing of the income tax department. As regards the appeal filed by the Revenue challenging the relief granted by the CIT (Appeals) on merits, the Tribunal concluded as follows: - Page 11 of 46 the investigation wing of the income tax department. As regards the appeal filed by the Revenue challenging the relief granted by the CIT (Appeals) on merits, the Tribunal concluded as follows: - “In view of the above, the only requirement in a case where share capital is received is the establishment of the identity of the shareholder whereby the names of the shareholders are to be given to the AO. Even if the shareholders are unable to explain the source of funds, the addition if any can be made in their individual hands only. In the instant case, the finding recorded by the CIT(A) with regard to identity of the shareholder has not been controverted by the learned DR. The Revenue has also not taken any ground that CIT(A) has relied on the additional evidence while deleting the addition, we therefore do not find any reason to interfere in the finding of the CIT(A) who has deleted the addition after applying the proposition of law laid down by the Hon’ble Supreme Court in the case of lovely Exports to the facts of instant case.” 16. The revenue is in appeal against the order of the Tribunal confirming deletion of the addition of Rs.1,18,50,000/- as well as the addition of Rs.2,96,250/-, both made under Section 68 of the Act. The following substantial questions of law arise in the appeal: “(1) Whether the Tribunal was right in law in confirming the order of the CIT(Appeals) deleting the additions of Rs.1,18,50,000/- and Rs.2,96,250/- both made under Section 68 of the Act, on the ground that the identity and creditworthiness of the share-applicants as well as the genuineness of the transactions were proved? Page 12 of 46 (2) Whether the order of the Tribunal confirming the deletion of the addition of the aforesaid two amounts was perverse having regard to the evidence and the material on record?” 17. The assessee company claimed that it received monies from several persons as share application monies on various dates during the accounting year ended on 31[st] March, 2000. The assessee is a Private Limited Company. The dates, the names of the companies and the amounts received from each of them are set out in the form of a table:- Page 13 of 46 The aforesaid amounts were added by the Assessing Officer by invoking Section 68 of the Act. He also added an amount of Rs.2,96,250/- as commission allegedly paid to the above companies for obtaining the accommodation entries. The whole case of the Assessing Officer, articulated before us by the learned Standing Counsel for the revenue, is that there was enough material on record to show that the companies named above were mere entry providers for consideration and that the transactions were not genuine, though documentary evidence was adduced by the assessee to show to the contrary. The case of the assessee on the other hand, briefly stated, is that the documentary evidence was Page 14 of 46 adequate to establish all the three ingredients required to be established by the assessee under Section 68, namely, the identity and creditworthiness of the share applicants and the genuineness of the transactions. It is also contended that the Assessing Officer has not disproved or discredited any of the evidence adduced by the assessee in support of the fact that it had received monies from the above named companies’ as share subscriptions. Page 14 of 46 adequate to establish all the three ingredients required to be established by the assessee under Section 68, namely, the identity and creditworthiness of the share applicants and the genuineness of the transactions. It is also contended that the Assessing Officer has not disproved or discredited any of the evidence adduced by the assessee in support of the fact that it had received monies from the above named companies’ as share subscriptions. 18. In the course of the assessment proceedings, the assessee had adduced documentary evidence in an attempt to prove all the three ingredients of Section 68 viz. (i) identity of the creditor, (ii) creditworthiness of the creditor and (iii) the genuineness of the transaction. But the question before us cannot be resolved merely on the basis of the documentary evidence. The evidence adduced by the assessee has to be examined not superficially but in depth and having regard to the test of human probabilities and normal course of human conduct. Before we proceed to note the findings of the Tribunal and decide whether they have been properly arrived at, it is relevant to note a few judgments of the Supreme Court. In Commissioner of Income-Tax, West Bengal II 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 Page 15 of 46 will b e 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.” In Commissioner of Income-Tax (Central), Calcutta v. Daulat Ram Rawatmull, (1973) 87 ITR 349, the Supreme Court dealt with the question as to when the findings of facts recorded by the Tribunal can be interfered with in a reference made under Section 66 of the Indian Income Tax Act, 1922. The Supreme Court referred to the leading case of Edwards (Inspector of Taxes) v. Bairstow, (1955) 28 ITR 579 (H.L.) decided by the House of Lords in which Viscount Simonds observed as under: - “For it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarized by saying that the court should take that course if it appears that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be ” In the same case Lord Radcliffe expressed himself in the following words: Page 16 of 46 “If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene.” Reference was also made to the observations of Bhagwati, J. (speaking for the majority) in the case of Mehta Parikh & Co. v. CIT, (1956) 30 ITR 181, which are as under: - In the same case Lord Radcliffe expressed himself in the following words: Page 16 of 46 “If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene.” Reference was also made to the observations of Bhagwati, J. (speaking for the majority) in the case of Mehta Parikh & Co. v. CIT, (1956) 30 ITR 181, which are as under: - “It follows, therefore, that facts proved or admitted may provide evidence to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact-finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question.” In Director of Income-Tax v. Bharat Diamond Bourse, (2003) 259 ITR 280, the Supreme Court again reiterated the aforesaid position and held as under: - “As a principle, this court does not disturb findings of fact unless the findings of fact are perverse. It appears to us this is one of those exceptional cases where the correct conclusion recorded by the Assessing Officer, and affirmed Page 17 of 46 by the appellate authority, has been reversed by the Tribunal on account of perverse reasoning, as we shall presently see.” 19. The position thus is that even where a reference of a question of law is made to the High Court under Section 66 of the Indian Income Tax Act, 1922 or Section 256 of the Income Tax Act, 1961 over which the High Court exercises advisory jurisdiction, and not appellate jurisdiction, where normally the findings of fact recorded by the Tribunal are binding on the High Court, it has been held by the Supreme Court that the findings are not binding on the High Court if they are perverse or if the findings are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. The position in an appeal under Section 260A of the Act is “a fortiori” as the judgment of the Supreme Court in the case of DIT v. Bharat Dimond Bourse, (supra ) would show. We shall demonstrate in the following paragraphs as to how both the CIT (Appeals) and the Tribunal have failed to appreciate the evidence in the proper perspective and on the lines indicated by the Hegde J. in the case of Durga Prasad More(supra). The present case is also not one, as we shall show presently, where the conclusion of the Tribunal is a reasonable conclusion which should not normally be disturbed even if the appellate court would have taken a different view on the same evidence and material. In the present appeal the evidence and material on record, properly considered in the light of the surrounding circumstances and without attaching weight to neutral circumstances or circumstances of no relevance, point to only one Page 18 of 46 conclusion, namely, that the monies introduced by the assessee as share subscriptions from 15 companies were its own unaccounted monies. 20. We now summarize the findings of the Tribunal as follows: - (a)The Assessing Officer has made the addition on the basis of the report of the investigation wing. the report of the investigation wing. Page 18 of 46 conclusion, namely, that the monies introduced by the assessee as share subscriptions from 15 companies were its own unaccounted monies. 20. We now summarize the findings of the Tribunal as follows: - (a)The Assessing Officer has made the addition on the basis of the report of the investigation wing. the report of the investigation wing. (b)The share application monies were received through account payee cheques from companies duly registered with ROC and as per the website of the Ministry of Corporate Affairs, all these companies were active. payee cheques from companies duly registered with ROC and as per the website of the Ministry of Corporate Affairs, all these companies were active. (c)The assessee has filed confirmations, certificate of incorporation of the companies who applied for the shares, data generated from the website of the ROC, bank statements from the companies/Directors for payment of money to the assessee company as share application money. incorporation of the companies who applied for the shares, data generated from the website of the ROC, bank statements from the companies/Directors for payment of money to the assessee company as share application money. (d)The Assessing Officer has not brought any material which can prove that the share capital emanated from the coffers of the assessee company. can prove that the share capital emanated from the coffers of the assessee company. (e)As per record, Mukesh Gupta and Rajan Jassal, who gave statements to the investigation wing on the basis of which the Assessing Officer had made the addition, were concerned only with four companies out of the 16 companies who statements to the investigation wing on the basis of which the Assessing Officer had made the addition, were concerned only with four companies out of the 16 companies who Page 19 of 46 advanced monies to the assessee. In respect of the other 12 companies the Directors were different. (f)The summons issued to Mukesh Gupta and Rajan Jassal and the Directors of 12 companies both during the assessment and the remand proceedings were duly served on them and, therefore, their existence and identity stood established. the Directors of 12 companies both during the assessment and the remand proceedings were duly served on them and, therefore, their existence and identity stood established. (g)No opportunity was allowed to the assessee to cross examine Mukesh Gupta and Rajan Jassal despite the assessee having specifically requested for cross examination before the Assessing Officer. Even in the reply given by the assessee to the reopening of the assessment, such a request had been made. The opportunity to cross examine was again denied during the remand proceedings. Since the assessee has been refused the opportunity to cross examine Mukesh Gupta and Rajan Jassal for a number of times, no purpose would be served in remanding the matter again to enable the cross examination. Mukesh Gupta and Rajan Jassal despite the assessee having specifically requested for cross examination before the Assessing Officer. Even in the reply given by the assessee to the reopening of the assessment, such a request had been made. The opportunity to cross examine was again denied during the remand proceedings. Since the assessee has been refused the opportunity to cross examine Mukesh Gupta and Rajan Jassal for a number of times, no purpose would be served in remanding the matter again to enable the cross examination. (h) In the affidavits filed by Mukesh Gupta and Rajan Jassal the earlier statements given to the investigation wing were retracted and they confirmed that the companies with which they were concerned did advance monies to the assessee companies as share capital. earlier statements given to the investigation wing were retracted and they confirmed that the companies with which they were concerned did advance monies to the assessee companies as share capital. Page 20 of 46 (h) In the affidavits filed by Mukesh Gupta and Rajan Jassal the earlier statements given to the investigation wing were retracted and they confirmed that the companies with which they were concerned did advance monies to the assessee companies as share capital. earlier statements given to the investigation wing were retracted and they confirmed that the companies with which they were concerned did advance monies to the assessee companies as share capital. Page 20 of 46 (i)Even the affidavits filed by the Directors of the assessee company remained unverified and were supported by corroborative evidence in the form of audit balance sheets and profit and loss accounts, bank statements of the share holders which reflected the issue of cheques to the assessee company, PAN details etc. The affidavits were not examined by the Assessing Officer even during remand proceedings despite specific direction given by the CIT(Appeals). company remained unverified and were supported by corroborative evidence in the form of audit balance sheets and profit and loss accounts, bank statements of the share holders which reflected the issue of cheques to the assessee company, PAN details etc. The affidavits were not examined by the Assessing Officer even during remand proceedings despite specific direction given by the CIT(Appeals). (j)The share holders have transferred their shares since long and were no longer the share holders of the assessee company. were no longer the share holders of the assessee company. (k) The bank accounts of the share holders show that there were no cash deposits therein and there was nothing to show that the share capital was in fact money which flowed from the coffers of the assessee company. no cash deposits therein and there was nothing to show that the share capital was in fact money which flowed from the coffers of the assessee company. 21. It is not in dispute in the present case that the assessment was reopened on the basis of information received from the investigation wing of the department about the existence of accommodation entry providers and their “modus operandi” in which the assessee was also found to be involved. Even the Tribunal has recorded, while dealing with the assessee’s cross objections challenging the jurisdiction of the Assessing Officer to reopen the assessment, that the information was specific, not general or vague, and referred to transactions entered into by the assessee Page 21 of 46 21. It is not in dispute in the present case that the assessment was reopened on the basis of information received from the investigation wing of the department about the existence of accommodation entry providers and their “modus operandi” in which the assessee was also found to be involved. Even the Tribunal has recorded, while dealing with the assessee’s cross objections challenging the jurisdiction of the Assessing Officer to reopen the assessment, that the information was specific, not general or vague, and referred to transactions entered into by the assessee Page 21 of 46 during the year under consideration. It has further been recorded by the Tribunal that as per the information of the investigation wing, the names of the persons issuing the cheques, the cheque amounts, dates etc., were also mentioned providing a link between the entry providers and the assessee. We are aware of the legal position that at the stage of issuing the notice under Section 148 the merits of the matter are not relevant and the Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax at escaped assessment. However, once that stage is crossed and the reassessment proceedings are set in motion, the material on the basis of which the requisite belief was formed by the Assessing Officer has to be appraised and examined. That material on the basis of which the notice under Section 148 was issued becomes relevant in the course of the reassessment proceedings. It is only because of this position that the assessee in the present case has been provided that the copies of the statement made by the Rajan Jassal and Mukesh Gupta as also copies of the printed contents of the CD received from the investigation wing containing the transactions made with various parties including the assessee. The Assessing Officer had also provided to the assessee the copies of the letters written by Mukesh Gupta and Rajan Jassal to the Additional CIT, Unit-1, New Delhi admitting various benami accounts maintained by them. It is in the light of this copious material that we have to proceed to make an assessment of the credibility of the evidence adduced by the assessee in the course of the reassessment proceedings. We may reiterate, at the cost of the repetition, that in the Page 22 of 46 statements recorded from Rajan Jassal and Mukesh Gupta by the investigation wing, they had implicated the assessee company also, inter alia. The material, as noted earlier, contained specific information relating to the assessee as found by the Tribunal. In the letters written by the aforesaid two persons to the Additional CIT, Unit-1, New Delhi, on 11[th] May, 2004, copies of which are placed at pages 74 to 80 of the paper book filed by the assessee before us, they have referred to their earlier statements and have stated that 22 companies named in Annexure A to the letter, were operating accounts in 12 banks, the names of which were given in the letter. These names include Vijaya Bank, Ram Nagar Branch and Bank of Punjab, Rohini Branch, New Delhi. The names of 22 companies have been given in the aforesaid letter dated 11[th] May, 2004 who are operating the bank accounts, numbering 12, mentioned in the letter. A perusal of the names of the entities from whom the assessee bank has received share application monies shows that except the name of Harpal Associates Pvt. Ltd. (the last item in the table set out earlier), all the other 15 names appear in the list of 22 companies mentioned in Annexure A to the letter. This establishes the link between the material which was present before the Assessing Officer both at the time when reasons for reopening the assessment were recorded and when the reassessment proceedings were made. Mukesh Gupta wrote another letter to the Additional CIT Investigation Unit-1, New Delhi, which appears to have been dated 15[th] April, 2004, admitting that he was operating several accounts in various banks in the names of Jayanti Lal & Sons, Mukesh & Page 23 of 46 Page 23 of 46 Co. and in his own name as well as in the benami names of Preeti Arora, Babita Gupta, Manju Gupta, Rajesh Kumar Gupta, Hukum Chand and Ashok Kumar Gupta. In this letter, against the names in which the accounts were operated, the names of the banks and the branches were also given. A similar letter was written also by Rajesh Jassal to the Additional CIT, Investigation Unit-1, New Delhi giving details of the bank accounts operated by him. In the letter written by Mukesh Gupta, the names of Vijaya Bank, Ram Nagar Branch, New Delhi and Bank of Punjab, Rohini Branch, New Delhi also figure. The former account is in the name of Babita Gupta and Manju Gupta, admittedly benamis of Mukesh Gupta. 22. It is in the aforesaid background that we have to vet the evidence adduced by the assessee in the course of the reassessment proceedings, which form the bedrock of the appellate order. So far as the affidavits of Rajan Jassal and Mukesh Gupta are concerned, copies are placed at pages 85 & 86 of the paper book submitted on behalf of the assessee before us. These affidavits are dated 4[th] December, 2007. In the affidavit of Rajan Jassal, he has stated that he is connected with M.V.Marketing Pvt. Ltd., Fair “N” Square Exports Pvt. Ltd. and Ethnic Creations Pvt. Ltd. These three companies figure as item Nos. 2, 4 & 5 to 7 in the table set out above. In the affidavit by Mukesh Gupta he has stated that he is connected with Satwant Singh Sodhi Constructions Pvt. Ltd, M.V. Marketing Pvt. Ltd., Fair “N” Square Exports Pvt. Ltd., Ethnic Creations Page 24 of 46 Pvt. Ltd and Maestro Marketing and Development Pvt. Ltd. These companies figure as item Nos.12, 2, 4, 5 to 7 and 3 respectively in the table set out above. They have referred to the connection between them and the above mentioned companies. Both Rajesh Jassal and Mukesh Gupta, in identically worded affidavits proceed to state that in their earlier statements they have stated that the above companies issued cheques to various companies or entities and in turn received back cash from them and thus the transactions were not genuine and bonafide transactions, that the statements as above were got recorded from them under pressure and coercion and absolutely against their wishes and that such transactions including the transactions of giving cheques to the assessee company (Nova Promoters and Finlease Pvt. Ltd.) were absolutely genuine and bonafide transactions wherein no cash had been received from assessee company in exchange of cheuqes issued to them. It has been stated in the affidavits that the cheques were issued to the assessee company for share application money for allotment of shares and subsequently shares were also issued. 23. It seems to us that in finding fault with the Assessing Officer for not accepting the above affidavits, both the CIT (Appeals) as well as the Tribunal have committed a serious error in appreciating the evidence. The affidavits were presented before the Assessing Officer in the course of the assessment proceedings on 4[th] December, 2007. In the appeal filed before the CIT (Appeals) he called for a remand report from the Assessing Page 25 of 46 23. It seems to us that in finding fault with the Assessing Officer for not accepting the above affidavits, both the CIT (Appeals) as well as the Tribunal have committed a serious error in appreciating the evidence. The affidavits were presented before the Assessing Officer in the course of the assessment proceedings on 4[th] December, 2007. In the appeal filed before the CIT (Appeals) he called for a remand report from the Assessing Page 25 of 46 Officer. In doing so, he directed the Assessing Officer to examine the contents of the affidavits and verify the genuineness of the averments made therein. The Assessing Officer submitted a remand report dated 30[th]April, 2009. In this report he stated that despite repeated opportunities the deponents of the affidavits were not produced before him for examination. It may be noted at this juncture that the assessee filed affidavits not only from Mukesh Gupta and Rajesh Jassal but also from several other persons who were in charge of some of the companies which had subscribed to the shares of the assessee company. Their names are Raj Kumar, Pramod Kumar, Harish Kumar etc. In the remand report, the Assessing Officer stated that as per the directions of the CIT(Appeals), summons were issued to all the deponents of the affidavits on 24[th] April, 2009 but they remained uncomplied with and none of the persons attended before him. When the remand report was given to the assessee for rejoinder, it is rather surprising to note that the assessee had nothing to say as to why the deponents of the affidavits, which were all in its favour, could not present themselves before the Assessing Officer for being examined on the affidavits. On the other hand, the assessee raised a legal plea that if the Assessing Officer is unable to verify the contents and correctness of the affidavits filed on oath, the same shall be treated as accepted by the department. The judgment of the Supreme Court in the case of Mehta Parekh and Company v. CIT (1956)30 ITR 181 was cited in support of the plea. Beyond this the assessee did not state anything by way of explanation as to why the d