ITO, WARD-1(4), FARIDABAD vs. KESHAV MEDICHEM P.LTD, FARIDABAD

PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-

This appeal by the Revenue is preferred against the order of the ld. CIT(A), Faridabad dated 22.10.2019 pertaining to Assessment Year 2011-12.

2. The Revenue has raised the following grounds of appeal:

On the facts and in the circumstances of the case, the Ld. CIT(A) (i) has erred in holding that the Assessing Officer has wrongly assumed the jurisdiction over the assessee under section 148 of the Income Tax Act, 1961 disregarding the facts that at the stage of re-opening, sufficiency or otherwise of the material is not to be seen. The only requirement is that there should be prima facie material on the basis of which the department could reopen the case as the Hon’ble Supreme court has clearly spelt it out in the case of Raymond Woollen Mills v. ITO (1999) ~'.36 ITI~ 34: 236 ITR 34 (SC).

(ii) "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the notice under section 148 was issued on the basis of invalid reasons and quashed the assessment holding as void ab-initio despite the Assessing Officer has duly recorded the reason and only then having satisfied as to the reopening of assessment proceedings issued notice under section 148 of the Act.

(iii) "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that there is no tangible material to show the nexus between the reasons recorded and belief so made by the Assessing Officer disregarding the facts that the submissions made and details provided by the assessee to the Inv. Wing as well as to the Assessing Officer which fanned the reason to believe and has deal t with subsequently, that even upto the appellate stage, there is no sufficient material available to grant any benefit of doubt to the assessee in its transactions and that in light of the material available, the only conclusion possible is the culpability of the assessee under section 68 as arrived at by the Assessing Officer.

(iv) On the facts arid in the circumstances of the case, the Lei. CIT(A) has erred in not examining the merits of the matter regarding the identity creditworthiness and genuineness of the transaction after Adjudicating the appeal filed by the assessee regarding validity of the assessment made under Section 1·17 of the Act even when the proceedings under section 147 was initiated after the reasons recorded for reopening under Section 148 of the Act and duly approved by the competent authority as such itself does survive the reopening of assessment as per the provisions of the Act..Considering Ihe provision of Section 147 as well as its Explanation 3, and also keeping in view that Section 14·7 is for the benefit of the Revenue and not assessee and is aimed at garnering the escaped income of the assessee.”

" Bank A/c No. credi S.No. Name PAN Name of Bank Total in t Bank a/c 1. Varanasi Coomunication AADCV1243L 033205003280 ICICI Bank 39637000 2. Laxmi Traders AMEPB5766G 0148-AZ0139-050 Indusland Bank 33313212.14 3. Shivam Traders AMEPB5766G o 148-AZO 139-050 Indusland Bank 30218574.5 4. Balaii Traders AMEPB5766G 0148-AZ0139-050 Indusland Bank 54274692.16 5. Astronomical Health Cares Pvt. Ltd AAICA6553F 01442560003286 HDFC Bank 35001000 6 Grey Heaven Health Care Pvt. Ltd. AADCG4943N 0605002100150273 PNB 1753400 7. Fly Sky Infratech Pvt. Ltd. AABCF4075C 0605002100150334 PNB 1367432 , 8. Adbhutah Infratech Pvt. Ltd. AAHCA7277M 0605002100150291 PNB 10145000

9. Adbhutah Infratech Pvt. Ltd. AAHCA7276L 0605002100150282 PNB 5010000 10. Splendid Buildtech Pvt. Ltd. AAMCS9270R 0330205003260 ICICI Bank 4616000 11. Ish Towers Pvt. Ltd. AACCIl0370 0330205003261 ICICI Bank 19801800 12. White Lotus Securities Pvt. Ltd. AAACW9481E 033205003277 ICICI Bank 44661600 13. Red Rose Securities AAECR710F 033205003278 ICICI Bank 4895580

5. On the basis of the above information, notice u/s 148 of the Act was issued after recording reasons u/s 147 of the Income-tax Act, 1961 [the Act, for short] and after taking approval from the PCIT, Gurgaon.

The reasons for initiating proceedings u/s 147 of the Act read as under:

~ Assessee has filed its income tax return for A. Y.2011-12 on 30.09.2011 vide acknowledgement No.301427331300911 declaring interest income having no business income. Later on information was received from the office e of the DDIT(Inv.) Unit-1(3} Jhandewalan Extension New Delhi through DCIT, Circle2(l) vide his office letter No.17241 dated 28.03.2018 that they have information regarding dummy companies having various bank accounts with different bank / branches. After analyzing the transfer pattern it was noticed that the accounts gets credit mainly in the form of clearing and withdrawals are mainly in the form of transfer. Further, it was very clear pattern of money being credited and debited on the same day and quantum of money is credited and debited immediately in the accounts indicating that the money is being routed from one account to another account with a purpose of creating layers. In view of above observations, it is established that these companies with no genuine business other than giving accommodation entries. As per report of the DDIT(Inv.) New Delhi M/s Keshav Medichem Pvt. Ltd. 1104, The Sphinex Tower, Gurugram, Haryana has received accommodation entries as per following details:-

Amount Bank A/c no.

1. M/s White Lotus Securities 670320110000269 1,57, 00, 100/-

In view of the above, it is noted that M/s Keshav Medichem Pvt Ltd has taken accommodation entry of Rs.1,67,00,150/- from aforesaid two companies and I, therefore, have reason to believe that income to the extent of Rs.1,67,00,150j-chargeable to tax, has escaped assessment for the A. Y.2011-12 within the meaning of section 147 of Income Tax Act; 1961 on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for A. Y.2011-12. In order to assessee the above income or any other income which comes to my notice subsequently in the course of assessment proceedings u/s 14~ 1, therefore, propose to assessee and escaped income and proceed to initiate proceedings u/s 147 of the L T. Act 1961 in this case for A. Y. 2011-12. In this case more than four years have lapsed from the end of the assessment year under consideration. Hence necessary sanction to issue notice u/s 148 is being obtained separately from the Principal Commissioner 'of Income Tax as per the provision of section 51 of the Act "

6. Various queries were raised during the course of assessment proceedings, which were duly replied by the assessee.

7. In its reply dated 28.12.2018, which is extracted at page 5 of the assessment order, the assessee categorically explained that the assessee has not received any loan or any amount from M/s White Lotus Securities amounting to Rs. 1.57 crores and from Blue Spire Health Care Pvt Ltd Rs. 10 lakhs.

8. It was explained that the assessee has, in fact, given loan of Rs. 10 lakhs to Blue Spire Health Care Pvt Ltd and has not received any credit from them. It is pertinent to mention here that the basis for reopening the assessment is the information received from DDIT that the assessee has received accommodation entries of Rs. 1,57,00,100 and Rs. 10,00,050/- from M/s White Lotus Securities and from Blue

9. The source of information available with the Assessing Officer was the letter dated 28.03.2018 of the DDIT, INV, New Delhi wherein it has been stated that the accommodation entries of Rs. 1.57 crores and Rs. 10 lakhs in the name of paper companies M/s White Lotus Securities and from Blue Spire Health Care Pvt Ltd were debited to the account No. 670320110000269 maintained with Bank of India.

11. These demonstrative facts clearly show that the Assessing Officer has reopened the assessment based upon wrong facts, wrong appreciation of facts and without any application of any mind, in as much as, the assessee has not taken any credit entry but, in fact, have made debit entries and, therefore, by no stretch of imagination provisions of section 68 of the Act can be applied.

12. Even if we assume that the reopening was done to know the sources of investment, then also provisions of section 69 cannot be made applicable, in as much as, the assessee has successfully shown the entries in its books of account vis a vis bank statements.

“For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.”

“5. The condition precedent to the exercise of the jurisdiction under section 147 is the formation of a reason to believe by the Assessing Officer that any income chargeable to tax has escaped assessment. Upon the formation or a reason to believe, the Assessing Officer, before making the assessment, reassessment or recomputation under section 147 has to serve on the assessee a notice requiring him to furnish a return of his income. Upon the formation of the reason to believe that income chargeable to tax has escaped assessment, the Assessing Officer is empowered to assess or reassess such income "and also" any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under section 147.

"Some courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment. He is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent.

With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in section147 to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of section 148."

The Punjab and Haryana High Court, in its decision, in Vipan Khanna v. Asstt. CIT [2002] 255 ITR 2201dealt with the question as to whether, after initiating proceedings under section 147 on the ground that the petitioner had claimed depreciation at a higher rate, the Assessing Officer would be justified in launching an inquiry into issues which were not connected with the claim of depreciation. This question was answered in the negative.

A Division Bench of the Kerala High Court held in Travancore Cements Ltd. v. CIT [2008] 305 ITR 1701 ,that upon the issuance of a notice under section 148(2), when proceedings were initiated by the Assessing Officer on issues in respect of which he had formed a reason to believe that income had escaped assessment, it was not open to the Assessing Officer to carry out an assessment, or reassessment in respect of other issues which were totally unconnected with the proceedings that were already initiated and which came to his knowledge during the course of the proceedings. The Division Bench held that in respect of an issue which is totally unconnected to the basis on which the Assessing Officer formed a reason to believe that income escaped assessment and issued a notice under section 148, it was open to him to issue a fresh notice by following sub-section (2) of section 148 with regard to the escaped income which came to his knowledge during the course of the proceedings. The Kerala High Court held as follows :

"….The Assessing Officer gets jurisdiction under section 148 to assess or reassess the income which has escaped assessment only after sub-section (2) of section 148 is complied with. The question is whether sub-section (2) of section 148 has to be complied with if any other income chargeable to tax has escaped assessment, or which comes to his knowledge subsequently in the course of the proceedings. In other words, when proceedings are already on in respect of one item in respect of the income for which he had already recorded reasons is it necessary that he should record reasons for assessing or reassessing any of the items which are totally unconnected with the proceedings already initiated. Suppose under two heads income has escaped assessment and those two heads are inter-linked and connected, the proceedings initiated or notice already issued under sub-section (2) of section 148 would be sufficient if the escaped income on the second head comes to the knowledge of the officer in the course of the proceedings. But if both the items are unconnected and totally alien then the assessing authority has to follow sub-section (2)of section 148 with regard to the escaped income which comes to his knowledge during the course of the proceedings."

Hence, the view of the Punjab and Haryana High Court and the Kerala High Court was that, once the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment and proceeds to issue a notice under section 148, it is not open to him to assess or, as the case may be, reassess the income under an independent or unconnected issue, which was not the basis of the notice for reopening the assessment.

the notice under section 148(2) does not include a particular issue with respect to which income has escaped assessment, he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section.

10. XXX

using the word "and". The words "and", as well as "also" have been used together and in conjunction.

The Shorter Oxford Dictionary defines the expression "also" to mean 'further, in addition, besides, too'. The word has been treated as being relative and conjunctive. Evidently, therefore, what Parliament intends by use of the words "and also" is that the Assessing Officer, upon the formation of a reason to believe under section147 and the issuance of a notice under section 148(2) must assess or reassess: (i) 'such income'; and also (ii)any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The words 'such income' refer to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the season to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from 1-4-1989 clearly stipulated that the Assessing Officer has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice during the proceedings. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter.”

19. Similar issue had arisen before the Hon'ble Jurisdictional High Court in the case of Ranbaxy Laboratories Limited versus CIT, (2011)

336 ITR 136 (Delhi). In the said case, the Division Bench had also examined Explanation 3 to Section 147, which was inserted by Finance (No. 2) Act of 2009 with retrospective effect from 1st April, 1989.

Reference was made to the decision of the Bombay High Court in CIT versus Jet Airways India Limited, (2011) 331 ITR 236 (Bom) in which it has been held as under:

"The effect of section 147 as it now stands after the amendment of 2009 can, therefore, be summarised as follows : (i) the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year ; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve on the assessee a notice under sub- section (1) of section 148 ; (iii) the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section ; and (iv) though the notice under section 148(2) does not include a particular, issue with respect to which income has escaped assessment, he may none the less, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section."

306 ITR 343 (Raj.) in which it has been observed as under:

"It is only when, in proceedings under section 147 the Assessing Officer, assesses or reassesses any income chargeable to tax which has escaped assessment for any assessment year, with respect to which he had 'reason to believe' to be so, then only, in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147.

To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the Assessing Officer were to come to the conclusion, that any income chargeable to tax, which, according to his 'reason to believe', had escaped assessment for any assessment year, did not escape assessment, then, the mere fact that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147."

"18. We are in complete agreement with the reasoning of the Division Bench of the Bombay High Court in the case of CIT v. Jet Airways (I) Limited [2011] 331 ITR 236 (Bom). We may also note that the heading of section 147 is "income escaping assessment" and that of section 148 "issue of notice where income escaped assessment". Sections 148 is supplementary and complimentary to section 147. Sub-section (2) of section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (1) thereof mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or recompute the escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per Explanation 3 if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of the escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148.

20. The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80- I which as per our discussion was not permissible. Had the Assessing Officer proceeded to make disallowance in respect of the items of club fees, gifts and presents, etc., then in view of our discussion as above, he would have been justified as per Explanation 3 to reduce the claim of deduction under sections 80HH and 80-I as well."

The order is pronounced in the open court on 23.03.2023.