SUMANGAL TECHPARK (P) LTD,NEW DELHI vs. ITO WARD - 24(3), NEW DELHI

This appeal filed by the assessee is directed against the order dated 26.02.2019 of the CIT(A)-8, New Delhi, relating to Assessment Year 2010-11.

First of all, we have heard the arguments of both the representatives on legal ground No.1 of the assessee which reads as under:- “3. The initiation of the proceedings u/s 148 and the consequent order us 147 are bad in law as a) The initiation of proceedings u/s 148 are contrary to provisions of law The mandatory procedure laid down in the Act has not been followed. c) The notice issued u/s 148 is time barred as issued after 4 years from the end of the relevant assessment year where the case has already been assessed u/s 143(3). d) The approval of Addl. CIT and PCIT is bad in law and mechanical without application of mind and has been taken without bringing to their notice material facts of the case. e) The information has been collected behind the back of the assessee and the assessee was never confronted with the same nor an opportunity provided for cross-examination of Jain Brothers, alleged intermediary and the relevant seized material relied upon has not been provided to the assessee.”

The written submissions of the assessee on this ground reads as follows:- “a. Reliance on non-existing provisions to support reopening of assessment: From the performa submitted by the AO for obtaining approval of Pr CIT, Delhi-8, New Delhi (Obtained through RTI on 09.12.2022), Copy enclosed. It can be seen that in S.No.7, there is a question “Whether the provisions of sec 147(a)/147(b)/147(c) is applicable or both sections are applicable. The answer recorded by the Ld AO against this query is sec 147(c) implying that the AO has invoked applicability of sec 147(c) of the Act. The reopening of assessment, satisfaction of the Ld AO and the approval granted by the Ld Pr CIT is based on the applicability of provision of sec 147(c) of IT Act and the validity of the each of the above actions need be tested on the availability of such section as supporting material. Here, it is relevant to note that there has never been any provisions of sec 147(c) right from inception of Income Tax Act 1922 and replaced Act of 1961 till today, The income tax Act 1961 prior to amendment through Direct Tax Laws Amendment Act 1987 applicable from 01.04.1989, had sections 147(a)/! 47(b) and in that era prior to amendment in 1987 too, there was no sec 147(c) in the Income Tax Act. Non-application of a non-existing section shows non- application of mind by all the authorities involved in initiation of action u/s 147 and the authorities are the _d AO recording reasons, Addl CIT recommending approval and Pr CIT according approval u/s 151 of IT Act. Application of non-existing provision of law to assume 2 147 undermines its validity in view of the decision OF Hon'ble Bombay High Court in the case of Smt Kalpana Shantilal Haria Vs AC IT W.P.(L) No.3063/2017 dated 22.12.2017 where easement proceedings were quashed on identical reason and also held that same is incurable u/s 292B/292BB of IT Act. The jurisdictional Delhi High Court in Yum! Restaurants Asia Pte Ltd VS DDIT in WP(C) No. 614/2014 dated 31.08.2017 has also considered the glaring mistakes in the performa for approval as the valid ground for quashing the assessment on the premise of non- application of mind by all the authorities involved in the process of recording reasons and providing satisfaction u/s 151. Reliance is also placed on the recent judgment of Hon’ble Delhi High Court in the case of Best Cybercity India P Ltd vs ITO WP(C) 12360/2018 td: 21.05.2019 in para 23. Further, the Hon'ble Bench of Delhi ITAT in the following cases has quashed the reassessment proceedings for initiation of proceeding by invoking repealed provision of sec 147(b) of IT Act: • M/s VRC Township P Ltd dt: 14.10.2020; • M/s Maheshwari Roller Flour Mills P Ltd vs ITO ITA No.4257/Del/2019 dt: 17.12.2020; • Shyam Products P Ltd vs ITO ITA No,1932/Del/2019 (authored by Hon’ble JM) • ACIT vs Shree Balkrishan Agarwal Glass Industries Ltd ITA No.5821/Del/2017 (authored by Hon’ble JM) b. Mechanical Approval by Pr CIT Inconsistencies and omissions pointed out in support of ground on nonapplication of mind are the glaring mistakes committed as discussed in preceding para by the AO and non-pointing out such omissions by the approving authority and resulting non-correction of the same, before the approval was accorded, shows that the said authority have acted mechanically in granting sanction u/s 151 of the Act. Such mechanical approval was found to be fatal for validity of the reassessment proceedings as decided by the co-ordinate Hon’ble Delhi Bench in the RMP Holdings P Ltd ITA No.7243/Del/2019 dt: 31.07.2020 wherein it was held that both AO and approving authorities have acted mechanically ignoring the glaring mistakes in the reason recorded showing non application of mind by the reason 3 Delhi High Court in the case of Sonia Gandhi 407 ITR 594 (Del) has been distinguished. Reliance is also placed on the decision of M/s Synfonia Tradelinks P Ltd vs ITO W.P.(C) No.l2544/2018 dt: 26.03.2021 (Del) has quashed the reassessment proceeding based on mechanical approval granted by approving authority. Further, reliance is placed on the following authorities: a. Chhugamal Rajpal vs. S.P. Chaliha & Ors. - 79 ITR 603 (SC); b. Arjun Singh vs Asstt. Director of Income Tax (M.P.) reported in (2000) 246 ITR 363 (MP); c. CIT vs M/s S.Goyanka Lime and Chemicals Ltd 231 Taxman 0073 Dated 15.10.2014 (MP) approved by Hon'ble Supreme Court in 64 taxmann.com 313 (SC). d. Pr. CIT vs. N. C. Cables Ltd 391 ITR 11 (Del) e. Maruti Clean Coal& Power Ltd Vs ACIT WP(T) No.346 of 2017 Dated 03.01.2018 (Chattisgarh High Court); f. German Remedies Ltd. vs. Dy. CIT (2006) 287 ITR 494 (Bom); g. United Electrical Company PLtd. vs. CIT & Ors[2002) 258 ITR 317(Del)"; h. Central India electric Supply Co. Ltd. Vs .ITO, 333 ITR 237 (Del).” ………………………………………………………………………………… ………………………………………………………………………………… “d. Non-Compliance of First Proviso to sec 147 I. In view of the assessment completed u/s 143(3) dt: 30.11.2012 (PB 181) and the action u/s 147 initiated after expiry of four years from the end of assessment year, the appellant’s case could not have been reopened unless the escapement of income occasioned due to failure of assessee to disclose truly & fully all material facts necessary for assessment. There is no specific allegation in reason recorded attributable to the assessee appellant although there is a bald statement in para no.23 (PB 15) but there is no identification of specific material facts not disclosed by the appellant in assessment 4 proceedings. The entire reason is silent on the fact whether original assessment was completed u/s 143(3) or not and if yes what were the materials produced by the appellant in those proceedings on the basis of which the allegation as covered by first proviso to sec 147 could be established. This issue was highlighted by the appellant before the AO in objection (PB 63-64) but Ld AO skipped the above legal issue raised while disposing off the objection of appellant (PB 55-62). II. It is a case of bald assertion of the fact of non-disclosure of all material facts fully and truly which is the case as per reason recorded, such bald assertion does not meet the mandatory requirement of above proviso in view of the following decisions: • BPTP Limited vs. PCIT 185 DTR 0372 (Del); • Anand Developers vs. ACIT (Bom) W P No. 17 of 2020 dt: 18.02.2020; • Best Cybercity (India) Pvt Ltd (2019) 414 ITR 0385 (Del); • M/s Swarovski India Pvt. Ltd v. Deputy Commissioner of Income Tax, W.P.(C) 1909/2013 decided on 08.08.2014 (Del); • Global Signal Cables (India) Pvt. Ltd. vs. Dy. CIT [2014] 368 ITR 609 (Del); • HCL Technologies Ltd. v. Dy CIT W.P.(C) 8164/2020 (Del); • M/s Sabh Infrastructure Ltd vs ACIT398 ITR 0198 (Del). III. The compliance of proviso solely depends on verification of facts/material disclosed in the course of assessment proceedings. From the perusal of reason recorded, the Ld AO did not discuss anything on the evidences furnished during original assessment proceedings. In absence of such exercise being undertaken, the AO could not have recorded satisfaction on such failure of the assessee. The purpose of proviso is to provide safeguard against the arbitrary misuse of provisions of reassessment and this mandatory condition is introduced through proviso to put the AO under obligation to identify the particular facts not disclosed by the assessee.

Briefly reiterating the written submissions of the assessee, the ld. AR submitted that assessee obtained copy of the proforma submitted by the AO obtaining approval of ld.PCIT, through RTI which was resubmitted on 09.12.2022 clearly show that the invocation of reassessment proceedings based on non-existing provisions of the law, i.e., 147(C) of the Act clearly shows that it is a clear case of non-application of mind by the AO and also by the authorities provided the approval u/s 151 of the Act. Reliance in this regard has been placed on the decisions of Smt. Kalpana Shantilal Haria vs. ACIT W.P (L) No.3063/2017, order dated 22.12.2017 (Bom); Best Cybercity India P. Ltd. vs. ITO (2019) 414 ITR 385 (Del); Omkam Developers Ltd. vs. ITO, order dated 11.05.2021; M/s VRC Township P. Ltd. vs. ITO, ITA No.1503/Del/2017 dated 14.10.2020; M/s Maheshwari Roller Flour Mills P. Ltd. vs. ITO, ITA No.4257/Del/2019 dated 17.12.2020; and Madhu Apartments P. Ltd. vs. ITO, ITA Nos.3869-3870/Del/2018, order dated 01.02.2021. Therefore, the ld. AR submitted that impugned reassessment proceedings and reassessment order may kindly be quashed as proposition rendered by above noted orders including order of coordinate Bench of ITAT Delhi in the case of Omkam Developers Ltd. (supra).

The ld. Sr. DR supported the impugned reassessment order as well as first appellate order and submitted that the mention of non-existent provision of section 147(C) of the Act is a clerical mistake which is curable u/s 292B of the Act. 7

On careful consideration of the rival submissions, from the order of the coordinate Bench of ITAT in the case of Omkam Developers Ltd. (supra), I observe that in the similar set of facts and circumstances, similar legal contention was placed before the ‘E’ Bench which was adjudicated as follows:-

In the present case, the copy of the form for recording the reason for initiation of proceedings u/s 147 of the Act and for obtaining the approval u/s 151 of the Act, which was obtained by the assessee through RTI on 09.12.2022 submitted along with written submission of assessee, the ld. Sr. DR did not dispute that in the column No.7, the AO mentioned that the provision of section 147(C) of the Act is applicable. For the sake of completeness, the said format is being reproduced below:-

Therefore, it is clear that the AO, in the first page of reasons (supra) mentioned in column 7 that provisions of section 147(C) is applicable which is non-existent in the statute book for AY 2010-11. This apparently shows non- application of mind by the AO while filling proforma in a mechanical manner and the ld. ACIT and Ld. PCIT also approved the same in a mechanical manner. So far as the contention of the ld. Sr. DR that this defect is curable u/s 292B of the Act is concerned, this contention was decided by the ITAT Delhi Bench in the case of Madhu Apartments India Pvt. Ltd., & 3870/Del/2018, order dated 01.02.2021, the relevant part of which has already been reproduced in the earlier part of this order since the same was referred to and included in the relevant part of the order of the ITAT in the case of Omkam Developers Ltd. (supra). Therefore, respectfully following the order of ITAT Delhi Bench in the case of Omkam Developers Ltd. vs. ITO (supra) and Madhu Apartments P. Ltd. vs. ITO (supra), we hold that the impugned reassessment proceedings and the impugned reassessment order deserves to be quashed and we hold so.

The next ground is challenging the validity of initiation of reassessment proceedings u/s 147 of the Act. The ld. AR, drawing our attention to assessee’s paper book page 181 submitted that the original assessment proceedings for AY 2010-11 were completed u/s 143(3) of the Act by passing scrutiny assessment order on 30.11.2012. Subsequently, reassessment proceedings were initiated for present AY 2010-11 on 26.03.2017, i.e., after expiry of four years from the end of relevant assessment year. The ld. AR submitted that the assessee’s case 17 147 of the Act unless the escapement of income occasioned due to failure of the assessee to disclose truly and fully all material facts necessary for the assessment. He, further drawing our attention to assessee’s paper book page 15 para 23, which are the reasons recorded submitted that there is no identification of specific material facts not disclosed fully and truly by the assessee during the assessment proceedings. He further contended that the entire reasons is silent on the fact whether original assessment was completed u/s 143(3) or not and if yes, what was the material produced by the assessee yet or what was the material not produced by the assessee in those original assessment proceedings on the basis of which the allegation as per requirement of first proviso to section 147 of the Act could be established.

The ld. AR pointed out that at the very initial state, the assessee filed objection to the initiation of reassessment proceedings beyond four years, copy of which is placed at pages 63-64 of the paper book, but, the AO skipped to adjudicate the said legal issue while disposing of the objections and the assessee by order dated 04.10.2017, copy of which is placed at pages 55-62 of the assessment order. The ld. AR submitted that the compliance of proviso to section 147 of the Act solely depends on the verification of facts/material disclosed in the course of assessment proceedings and without complying with this mandatory condition introduced, through the proviso to section 147 of the Act, to put the AO under obligation to identify the facts not fully and truly disclosed by the assessee.

Replying to the above, the ld. Sr. DR supported the action of the AO.

First of all, we may point out that at page 15 of the reasons recorded, in paras 22 and 23, and at the concluding para, the AO has made the following observations/allegations against the assessee and for initiation of reassessment proceedings:- “22. Considering the above referred credible information, incriminating seized document u/s 132 of the Act and enquiries and investigation subsequent to the information, I have reason to believe that an amount at least of Rs. 1,53,45.000 & commission of Rs 2,76,210 has escaped assessment in case the of M/s Sumangal Techpark Pvt. Ltd. for the A.Y 2010-11 within the meaning of Section 147/148 of income-tax Act, 1961. 23. Since more than 4 years of the relevant years have passed and the information received from the investigation wing is that transactions are in the nature of accommodation entries, are non disclosure: of material facts pertaining to such transactions which has not been disclosed by the assessee in the return of income or during the assessment proceedings of this relevant year. Thus, this specific condition for reopening is hereby fully filled in the instant case as assessee has failed to disclose such material facts on its own earlier. The case is squarely covered under provisions of section 147 of income- tax Act. 1961. Moreover, as the case pertains to a period beyond four years from the end of relevant assessment years at the time of issue of notice, necessary sanction has to be obtained from Pr. Chief Commissioner of Income Tax or Pr, Commissioner of Income Tax or Commissioner of Income Tax, in view of the amended provision of section 151 w.e.f 01.06.2015. The necessary sanction in this regard is being obtained separately from Pr. Commissioner of Income Tax-08, Delhi before the issue of notice u/s 148 for reopening of assessment under section 147 in the case of assessee company”

From the above, it is clear that there is no observation or allegation by the AO that there was failure on the part of the assessee in disclosing fully and truly all material facts relevant for its assessment during the original assessment proceedings. Now, we proceed to adjudicate the legal ground of the assessee in this regard.

On careful consideration of the rival submissions, we are of the view that the ld. Sr. DR has not controverted some undisputable facts that the original assessment proceedings were completed u/s 143(3) of the Act and scrutiny assessment order was passed on 30.11.2012 for AY 2011-12. It is also not in dispute that the AO initiated reassessment proceedings u/s 147 by issuing notice by recording reasons and issuing notice u/s 148 of the Act on 26.03.2017 i.e., beyond four years from the end of relevant assessment year. Therefore, as per requirement of mandatory provisions i.e., proviso to section 147, the AO is required to make specific allegation to identify the particular facts not fully and truly disclosed by the assessee and compliance of the said mandatory provision solely depends on verification of facts/material disclosed by the assessee in the course of assessment proceedings and from perusal of the reasons recorded. In a case the AO did not disclose anything on the evidences furnished during the original assessment proceedings and failed to identify the particular facts or material which were not fully and truly disclosed by the assessee, then, the initiation of reassessment proceedings beyond the period of four years from end of relevant assessment year has to be held as void ab initio and bad in law as per various judgements including the judgement of the Hon’ble jurisdictional High Court of Delhi in the case of Dushyant Kumar Jain (supra) and in the case of CIT vs. Usha International Ltd. (supra). Our conclusion also gets support from the judgement of the coordinate Bench of the ITAT in the case of M/s AST Pipe Pvt. Ltd. (supra) as there is no allegation by the AO in the relevant and concluding part of the reasons recorded available at page 15 of the reasons. Therefore, we conclude that the initiation of reassessment proceedings u/s 147 of the Act and issuance of notice u/s 148 of the Act is void ab initio and bad in law being initiated without complying with the mandatory provisions of first proviso to section 147 of the Act.

Since, by the earlier part of this order, we have quashed the reassessment proceedings and reassessment order while adjudicating the legal ground No.3 of AO could be held as sustainable. Therefore, other grounds of appeal of the assessee challenging the validity of reassessment proceedings are rendered academic in nature and, therefore, we are not adjudicating upon those legal contentions of the assessee. The ld. Sr. DR has filed written submissions on merits. So far as the grounds of the assessee on merits are concerned, since the reassessment proceedings have already been quashed in the earlier part of this order, therefore, the other grounds of assessee on merits are not being adjudicated as having become academic only.