Reopening Notice Upheld for Accommodation Entries During Demonetisation Period

Summary in Key Points:

Issue: The assessee challenged a reopening notice issued under Section 148 of the Income Tax Act, alleging that the addition of Rs. 6.39 crores as “unexplained cash credit” under Section 68 was based on insufficient evidence.
Facts: The reopening was based on evidence obtained during demonetisation, including a statement from an individual admitting to providing accommodation entries to the assessee. This was corroborated by entries found in a diary seized during a search operation.
Decision: The ITAT upheld the reopening notice, finding that the evidence collected during demonetisation, including the statement and diary entries, provided sufficient basis for the AO to believe that income had escaped assessment.
Reasoning: The assessee failed to provide any contrary evidence or challenge the validity of the evidence gathered during the search and seizure operation.

Decision:

The ITAT ruled in favor of the revenue, emphasizing that the AO had valid grounds to reopen the assessment based on the evidence of accommodation entries.

This case highlights the importance of evidence gathered during search and seizure operations in tax assessments. It demonstrates that such evidence, when credible and corroborated, can be used to reopen assessments and make additions for unexplained cash credits. The assessee’s failure to counter the evidence contributed to the upholding of the reopening notice. This case serves as a reminder for taxpayers to maintain proper documentation and be prepared to explain any suspicious transactions, especially during periods of heightened scrutiny like demonetisation.

HIGH COURT OF MADHYA PRADESH

R.K. Bullion

Assistant Commissioner of Income-tax

VIVEK RUSIA and BINOD KUMAR DWIVEDI, JJ.

WRIT PETITION No. 25417 of 2024

NOVEMBER 25, 2024

Ashish Goyal, learned counsel for the Petitioner. Harsh Parashar, learned counsel for the Respondent.

ORDER

Vivek Rusia, J.- Heard on the question of admission & interim relief.

2. The petitioner has filed the present petition under Article 226 of the Constitution of India challenging the validity of order dated 28.03.2024 passed under Section 148A(d) of the Income Tax Act, 1961 (in short ‘the Act’). The petitioner is also aggrieved by the notice issued under Section 148 of the Act for reassessment of income for the Assessment Year – 2017 – 18.

3. Facts of the case, in nutshell, are that the petitioner is a partnership firm engaged in the business of trading of gold, silver bullion and ornaments. The petitioner submitted the Income Tax Return under Section 139 of the Act on 31.08.2017 disclosing the income received from M/s Vivek Jewellers. The said return was selected for scrutiny by issuing notice under Section 143(2) of the Act. The Assessing Officer examined all the documents and passed the assessment order dated 29.12.2019 accepting the return submitted by the petitioner.

4. A search and seizure operation under Section 132 of the Income Tax Act was conducted at the premises of Jindal Bullion Limited (JBL Group) on 05.01.2017, followed by notice under Section 153C of the Act dated 30.09.2020 for the Assessment Year – 2015 – 16 & 2017 – 18. Another search and seizure operation under Section 132 of the Act was also conducted in the premises of Nikhil Soni, Proprietor of M/s Vivek Jewellers on 08.05.2019.

5. The Central Circle 1, Indore Income Tax Department issued a notice under Section 142(1) of the Act calling upon the petitioner to furnish the ledger account copy of JBL Group, K J Sons Jewellers Private Limited and of M/s Vivek Jewellers for the year under consideration. The petitioner was also called upon to show cause and explain why your books of account be not rejected under Section 145(3) of the Act if ‘Ty’ ledgers are not found recorded in your books of account.

6. The petitioner submitted a detailed reply to the aforesaid notice, and thereafter, the Assessing Officer passed an order under Section 143(3) r/w section 153C of the Act on 30.12.2021 directing for issuance of penalty notice under Section 271(1)(c) of the Act for furnishing inaccurate particular of income of Assessment Year – 2016 – 17 and under Section 270A for Assessment Year – 2017 – 18 for misreporting of income.

7. Thereafter, the petitioner was served with the notice under Clause (b) of Section 148A of the Act because during the demonetisation period i.e. Financial Year – 2016 – 17, the bank account of M/s R.K. Bullion received RTGS credit amounting to Rs.6,39,29,700/- through the bank account of M/s Vivek Jewellers and the petitioner is one of the beneficiary of the accommodation entry provided by M/s Vivek Jewellers, proprietor Nikhil Soni and the income to the extent of Rs.6,39,29,700/- has escaped assessment from Assessment Year – 2017 – 18.

8. The petitioner submitted a detailed reply to the aforesaid notice, and thereafter, the final order was passed on 28.03.2024 because the assessee failed to explain the nature and source of Rs.6,39,29,700/- which has escaped assessment, and recommended for issuance of show-cause notice under Section 148 of the Act. Thereafter, a notice under Section 148 of the Act has been issued to the petitioner. Hence, the petitioner has approached this Court by way of this writ petition inter alia on the ground that the petitioner is being subjected to harassment again and again in respect of assessment proceedings.

9. Learned counsel for the petitioner submits that there cannot be reopening of assessment only on the basis of third party statement / record which is not binding on the petitioner. It is further submitted that the notice under Section 148 of the Act cannot be issued as the search was conducted before 05.01.2017. The petitioner had already been subjected to assessment under Section 153 of the Act and no infirmity was found, therefore, after introduction new section i.e. 148 / 148A w.e.f. 01.04.2021, no fresh assessment can be done. In support of the aforesaid contentions, learned counsel for the petitioner has placed reliance upon several judgments delivered in the cases of Commissioner of Income-tax, Delhi v/s Kelvinator ofIndia Limited reported in 312/320 ITR 561 (SC), Siemens Limited v/s Deputy Commissioner of Income-tax reported in, Mahogany Logistics Services (P.) Limited v/s Income Tax Officer reported and Tirupati Construction Company v/s Income Tax Officer reported in(Rajasthan), in which various High Courts have set aside the order passed under Section 148A(d) and notice issued under Section 148 of the Act.

10. Shri Harsh Parashar, learned counsel for the Income Tax Department submits that the present writ petition is not maintainable as the petitioner is having remedy to raise all these grounds before the competent authority, thereafter, he will have remedy to file an appeal before the appellate authority as well as before the Income Tax Appellate Tribunal. In support of the aforesaid contention, learned counsel has placed reliance upon a judgment delivered by Co-ordinate Bench in the case of Laxminarayan Patidar v/s Income Tax Officer & Another (Writ Petition No.13065 of2022).

Heard.

11. After giving opportunity of hearing to the petitioner, the order under Section 148A(d) of the Act has been passed by the respondents. The order is based on the statement of Nikhil Soni given on oath during the search. Nikhil Soni admits that he had provided accommodation entry to the present petitioner through his business concerns which is reflected from the diary (pages – 7 & 8) of LPS – 08, found and seized from the business premises of M/s Vivek Jewellers. Therefore, prima facie opinion was recorded that accommodation entry of Rs.6,39,29,700/- remained unexplained in the hand of assessee i.e. present petitioner which has escaped assessment from the Assessment Year – 2017 – 18. The petitioner is yet to explain the nature and source of the aforesaid income. The proceedings are within limitation as observed in para – 8 of the impugned order.

12. It is important to mention here that the aforesaid entries are found in the material collected in search and seizure during the demonetisation period. The petitioner has not placed any material in respect of assessment proceedings conducted against M/s Vivek Jewelers & Jindal Bullion Limited, therefore, detailed enquiry will be conducted under Section 148 of the Act by the authority, where the petitioner will get ample opportunity to prove his case. Hence, no case for interference is made out in the matter.

13. In view of the above, Writ Petition stands dismissed.