By TIOL News Service

AHMEDABAD, JUNE 27, 2016: THE issue is - Whether initiation of reopening on basis of accomodation entries found during the course of search is sustainable. YES is the answer.

Facts of the caseThe assessee is an individual and is regularly assessed to tax. He had filed his return for the A.Y 2010-11, on which, the AO passed scrutiny assessment. Subsequently, the AO conducted a search and survey action at the residence and offices of Shirish Chandrakant Shah and at the residence of his key employees and associates. During the course of search, it was found that SCS was engaged in providing accommodation entries of share capital, share premium, share application money, unsecured loans, Long Term Capital Gains, Short term capital gain wherein cash was received by him from various clients and against this cash he provides accommodation entries. During the course of search, documents and digital data containing datewise details of receipt and payment of cash and cheques by Shirish Chandrakant Shah was found to be maintained in form of cash and cheques sheets. The records of providing accommodation entries are maintained by SCS in various excel sheets maintained in the name of intermediaries who have introduced clients to SCS. On examination of the seized/impounded evidence, accounts in name of Rajesh Jhaveri have also been found to be recorded in excel sheets under various names such as "rajesh Jhaveri"; "rj"; "n navkar"; "R JHAVERI"; "RAJESH JHAVERI" and "N NAVKAR (sawaca)". These accounts contain the details of cash received from/through Rajesh Jhaveri by SCS and the accommodation entries provided there against. The transactions recorded in the "rajesh Jhaveri" sheet represent buying and selling of shares through synchronized trading. The entries as recorded in this sheet have been corroborated with the trade data of PIL as obtained from BSE. On correlation, it has been found that these transactions relate to actual trades executed on BSE. As per the entries recorded in the said sheet, the payout made in the shares of PIL has been made against receipt of cash by SCS. From the entries recorded in 'n navkar bips 30.10.12.xls' with regard to shares of Prraneta Industries Limited, it was seen that the assessee has received payout of Rs.4,03,34,595/- on sale of 955644 shares of Prraneta Industries Ltd. As recorded in the seized/impounded documents, the payout has been received against payment of cash. Thus, the entire transaction wherein payout of Rs.4,03,34,595/- had been received by assessee during A.Y. 2010-11/ 2011-12 was not genuine transaction. Therefore, the AO had reason to believe that income amounting to Rs 4,03,34,595/- chargeable to tax had escaped assessment within the meaning of section 147. Accordingly, he issued reopening notice. The assessee raised objections to the process of reopening. Such objections were however, rejected.

Having heard the parties, the High Court held that,

++ if one peruses the reasons recorded by the AO, the first part gives details of the manner in which Shirish Chandrakant Shah had created a web of number of sham companies, through which, he would provide range of accommodation entries including long term capital gain through sale of shares and retain commission for himself in the process. In this part, we also notice that Rajesh Jhaveri was one of the important players in this process devised by Shirish Chandrakant Shah. There was primafacie material suggesting Prraneta Industries Limited was one such company utilized by Shirish Chandrakant Shah for such purpose. These details had come on record through statements of various persons recorded by the Revenue authorities through search and survey operations. For example, during the search of Prraneta Industries Limited, the manager of the company – Radheshyam Sharma had stated that there was no business activity in the company and the entire affairs including preparation and maintenance of books of accounts was being done by Shirish Chandrakant Shah. Shri Omprakash Anandilal Khandelwal, the Managing Director of the company had also stated that the company is engaged in providing accommodation entires and no actual business activity is being undertaken. The affairs of the company being managed and controlled by Shirish Chandrakant Shah and the bank accounts of the company are being used to provide accommodation entries. The two more directors of company viz. Jyoti Dhiresh Munver and Jils Raichand Madan had also filed declarations stating that they were dummy directors. As per the reasons recorded, we further gather that the account earlier maintained in navkar bips made reference to various sales, purchases and investments of various persons. The Revenue authorities matched the transactions found in such records with the data from BSE. The entries were corroborated with the trade data of Prraneta Industries Limited maintained by BSE. It was on basis of such exercise that the AO had recorded his reasons that with respect to shares of Prraneta Industries Limited, the assessee had received pay out of Rs.4.03 crores for sale of Rs.9,55,644/- shares;

++ the Revenue has produced a full compilation of such entrie. We had a glance at such entries and found primafacie justification enabling the AO to come to the said conclusion. We do not find that the reasons lack validity or that there was no live link between the material on record and formation of the belief that the income chargeable had escaped assessment. It is true that in the compilation produced, the total of payout during the period under consideration is some what lesser than what is recorded with the AO in terms of volume of shares and the value of receipt. However, when such large entries are being examined and corelated, minor discrepancy would not shake the very foundation of reason to believe, particularly when substantial portion of such alleged payout is demonstrated through the entries, matching with the BSE record of buying and selling data of Prraneta Industries Limited. In the reasons recorded, the AO has mentioned that such amount of Rs.4.03 crores is received by the assessee during the assessment year 2010-11/ 2011-12 which is not genuine transaction. This one statement cannot be picked out of context and appreciated in isolation to argue that the AO is not clear as to in which year such income should be taxed. The notice for the reopening was issued for the assessment year 2010-11, majority of transactions are relevant to such assessment year. If a small portion of the entries related to the subsequent A.Y, it would not mean that the assessment cannot be reopened for the year during which majority of these transactions actually took place.

(See 2016-TIOL-1217-HC-AHM-IT)