M/S KAUR SAIN SPINNING & WEAVING MILLS LTD.,LUDHIANA vs. ACIT, CC-II, LUDHIANA

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, “A”, CHANDIGARH BEFORE SHRI N.K. SAINI, VICE PRESIDENT & SHRI R.L NEGI, JUDICIAL MEMBER आयकर अपीलसं./ITA Nos. 1374/CHD/2019 �नधा�रण वष� / Assessment Year : 2011-12 M/s Kaur Sain Spinning & बनाम The ACIT, Weaving Mills Ltd., Central Circle-II, A-17, Phase III, Ludhiana Focal Point, Ludhiana �थायीलेखासं./PAN NO: AABCK6909J अपीलाथ�/Appellant ��यथ�/Respondent Hearing through video Conferencing �नधा�रतीक�ओरसे/Assessee by : Shri Ashwani Kumar, CA राज�वक�ओरसे/ Revenue by : Smt. Meenakshi Vohra, Addl. CIT सुनवाईक�तार�ख/Date of Hearing : 18.01.2021 उदघोषणाक�तार�ख/Date of Pronouncement : 16.04.2021 आदेश/Order Per R.L. Negi, Judicial Member:

The assessee has filed the present appeal against the order dated 16.09.2019 passed by Commissioner of Income Tax (Appeals)-5, Ludhiana [for short ’the CIT(A)’] whereby the Ld. CIT(A) has dismissed the appeal filed by the assessee against the assessment order passed u/s 143(3) read with section 147 of the Income Tax Act, 1961 (for short 'the Act'). 2. Brief facts of the case are that the assessee a Private Ltd. Company engaged in the business of manufacturing of yarn and cloth, filed its return of income for the assessment year under

ITA No. 1374-Chd-2019- M/s Kaur Sain Spinning & Weaving Mills Ltd., Ludhiana 2 consideration declaring nil income. The return was processed u/s 143(1) of the Act. 3. Subsequently, the AO received an information from the ITO, Ward-15(3), Mumbai that a seizure action u/s 132 of the Act was carried out in the case of M/s Varah Infra Group of Jodhpur on 21.01.2015, on the allegation that the company has routed its unaccounted money in the form of share premium to various paper companies at Kolkata, Mumbai, Indore and Jodhpur and Shri Jagdish Prasad Purohit in his statement recorded u/s 132(4) of the Act admitted that he and his associates provide accommodation entries to various willing companies in the form of share capital, share premium, bogus bills, unsecured loans etc. on commission basis. That M/s Real Time Consultants Pvt. Ltd, Mumbai, one of the concerns managed by Jagdish Prasad Purohit had made investments amounting to Rs. 20 lacs in assessee company. 4. On the basis of the said information, the AO issued notice u/s 148 of the Act after obtaining sanction from the Principal Commissioner of the Income Tax under section 151 of the Act. In response thereof the authorized representative of the assessee appeared before the AO. The AO issued notice u/s 133(6) of the Act to M/s Real Time Consultants Pvt Ltd. however, the AO did not receive any response. Opportunity was also given to the assessee to prove the genuineness of the transaction. After

ITA No. 1374-Chd-2019- M/s Kaur Sain Spinning & Weaving Mills Ltd., Ludhiana 3 hearing the authorized representative of the assessee, AO made addition of Rs. 20 lacs u/s 68 of the Act and assessed the income of the assessee at Rs. 20 lacs holding that the assessee has failed to discharge the onus of establishing the genuineness of the transaction of investment made by M/s Real Time Consultants. The Assessee challenged the assessment order before the Ld. CIT(A). the Ld. CIT(A) after hearing the assessee dismissed the appeal of the assessee and confirmed the addition of Rs. 20 lacs made u/s 68 of the Act. Against the said findings of the Ld. CIT(A), the assessee is in appeal before this Tribunal. 5. The assessee has challenged the impugned order passed by the Ld. CIT(A) on the following grounds - 1. That order passed u/s 250(6) of the Income Tax Act, 1962 by the Ld. Commissioner of Income Tax (Appeals)-5, Ludhiana is against law and facts on the file in as much as he was not justified to arbitrarily uphold the action of the Ld. Assessing Officer in resorting to provisions of Sec. 148.

ITA No. 1374-Chd-2019- M/s Kaur Sain Spinning & Weaving Mills Ltd., Ludhiana 4 information received from ITO, Ward-15(3), Mumbai, without applying his mind and that the satisfaction recorded is borrowed satisfaction, therefore the assessment order passed u/s 143 read with section 147 of the Act is liable to be quashed. The Ld. Counsel, placing reliance on the decision of the Chandigarh Bench of the Tribunal in the case of M/s Century Fiscal Services Ltd. Vs. ITO ITA No 1204/Chd./2018, Indo Global Techno Trade Ltd. vs ITO ITA No. 1616/Chd/2018 for the AY 2010-11 and other cases placed on record, submitted that since the action of the AO was contrary to the decisions of the jurisdictional Tribunal in the aforesaid cases, the Ld. CIT(A) ought to have set aside/ quashed the assessment order and deleted the addition made by the AO u/s 68 of the Act. 7. The Ld. Counsel further pointed out that the Ld. CIT(A) has passed the impugned order in violation of the provisions of law. Since the case of the assessee was reopened on the basis of search conducted in the case of M/s. Varah Infra Group, the assessment was required to be completed u/s 153C of the Act. Since, no action u/s 153C was taken and assessment order was passed u/s 143(3) read with section 147 of the Act, the Ld. CIT(A) ought to have set aside the assessment order passed by the AO. The Ld. Counsel relied on the decision of the ITAT, Chandigarh in the case of Shri Amarjeet Singh Randhawa Vs ACIT, ITA No. 795/Chd/2017 for the AY 2010-11 and Shri Sanjay

ITA No. 1374-Chd-2019- M/s Kaur Sain Spinning & Weaving Mills Ltd., Ludhiana 5 Singhal (HUF) Vs. DCIT ITA No. 702 to 704/Chd/2018 for the AY 2011-12 to 2013-14 to substantiate his contention. 8. On the other hand, the Ld. Departmental Representative (DR) submitted that since the AO had passed the assessment order as per the provisions of law after due application of mind, the Ld. CIT(A) has rightly upheld the assessment order and confirmed the addition. 9. On the second limb of argument of the Ld. Counsel, the Ld. DR submitted that since the documents seized during the seizure action did not pertain to the assessee, the AO opted to pass the assessment order u/s 143(3) read with 147 of the Act. Hence, there is no infirmity in the order passed by the Ld. CIT(A). 10. We have heard the rival submissions of the parties and also perused the material on record including the cases relied upon by the Ld. counsel for the assessee and the authorities below. The first limb of the argument advanced by the Ld. Counsel is that since the AO has initiated the proceedings u/s 147 read with section 148 of the Act, solely on the basis of information received from ITO, Ward-15(3), Mumbai, the assessment order passed by him is void ab initio, therefore the Ld. CIT(A) has eared in upholding the action of the AO. As contended by the Ld. Counsel, the contents of the reasons recorded suggest that the AO has formed the belief that income of the assessee has escaped, on the basis of the information received from the

ITA No. 1374-Chd-2019- M/s Kaur Sain Spinning & Weaving Mills Ltd., Ludhiana 6 department. The relevant paras of the reasons recorded read as under: “It is also noted from the records that M/s Real Time Consultants Limited has made investments inter-alia in the following concern: S.No. PAN Name Amount (In Rs.) 1. AABCK6909J M/s Kaur 20,00,000/- Sain Spinning & Weaving Mills Limited As the investments made in this concern are out of the bogus share capital and share application money received by M/s Real Time Consultants Private Limited and it is the beneficiary of these transactions. I have therefore reasons to believe that the income of Rs. 20,00,000/- which otherwise is chargeable to tax for the assessment in the hands of M/s Kaur Sain Spinning & Weaving Mills Limited, for the A.Y. 2011-12 for which a notice u/s 148 is being issued in accordance with the provisions of the Act.”

ITA No. 1374-Chd-2019- M/s Kaur Sain Spinning & Weaving Mills Ltd., Ludhiana 7 The operative part of the order passed by the coordinate Bench is reproduced as under: “There is no quarrel with the proposition of law that for the purpose of assuming jurisdiction to reopen the case u/s 147 of the Act, it is the A.O. who has to be satisfied and form belief of escapement of income. The AO, no doubt acts on information coming in his possession, for the purpose of reopening a case, but before acting on the same he has to be satisfied that the information sufficiently leads to a belief of escapement of income. He has to apply his mind to the information to arrive at such satisfaction. The reliance placed by the Ld. Counsel for the Assessee on latest decision of the ITAT Delhi Bench in the case of M/s Rajshikha Enterprises Pvt. Ltd. (supra) ,is apt, wherein the aforesaid proposition of law was upheld relying on decisions of the Hon’ble Delhi High Court in the case of CIT Vs G & G Pharma India Ltd.( 2016) 384 ITR 147 & Pr. CIT Vs. Meenakshi Overseas Pvt. Ltd. (2017) 395 ITR 677 which held that while report of the Investigation Wing might constitute material for the AO forming reasons to believe ,the process of arriving at such satisfaction could not be a mere repetition of the report of investigation. In the present case on perusing the contents of the reasons recording the satisfaction of escapement of income by the A.O. as reproduced above, it is very much evident that the AO has merely relied on the information passed on to him by the Investigation department regarding accommodation entry taken by the assessee, without even applying his mind to it and verifying the same. The entire reasons, we find, talks about some information with the Department regarding the assessee having availed accommodation entries of Rs.20 lacs from M/s Virgin Capital Services Pvt. Ltd. a paper company of M/s Surinder Kumar Jain Group, which is engaged in providing such entries, through cheque in lieu of cash. There is nothing in the reasons revealing application of mind by the AO to the information in his possession, as to whether he had verified that any such amount was actually received during the year and if so in what mode or manner i.e as share capital or unsecured loan etc. The A.O. has formed his belief solely on this information without even verifying and cross checking the same with the facts on record available with him. The belief of escapement of income as recorded in the reasons, is clearly not that of the A.O. but, as rightly pointed out by the Ld. Counsel for the Assessee, it is a borrowed belief. The Ld. CIT(A), we find, has dismissed assesses contention and held that the A.O. had applied his mind independently while recording satisfaction without pointing out how, when the fact as demonstrated before us is to the contrary. In view of the above, since the satisfaction regarding escapement of income as recorded in the reasons, was not that of the AO but was borrowed satisfaction, the jurisdiction therefore assumed to reopen the case u/s 147 of the Act was bad in law. The

ITA No. 1374-Chd-2019- M/s Kaur Sain Spinning & Weaving Mills Ltd., Ludhiana 8 assessment order passed as a consequence by the AO is therefore not sustainable in law and is accordingly quashed. 8. Ground No. 1 of the appeal is therefore allowed.” 12. Similarly, in the case of Indo Global Techno Trade limited vs. ITO (supra), the coordinate Bench has quashed the proceedings- initiated u/s 147 read with section 148 of the Act, for the reason that the AO had formed the belief on the basis of information received from the Directorate of Income Tax (intelligence & Criminal Investigation) containing details of companies which have received share premium at very unreasonable rate. The findings of the coordinate Bench are as under: “10. The Ld. Counsel for the assessee at this stage has also invited our attention to the decision of the Coordinate Chandigarh Bench of the Tribunal in the case of ‘D.D. Agro Industries Ltd v ACIT’, ITA Nos. 349 & 350/Chd/2017 order 7.9.2017, dated wherein, on identical facts and circumstances, the Assessing Officer has recorded identical reasons to form belief for reopening of the assessment. The Coordinate Chandigarh Bench of the Tribunal has held that the Assessing Officer assumed jurisdiction relying upon the non-specific routine information blindly without caring to first independently consider the specific facts and circumstances of the case and that the assumption of jurisdiction by the Assessing Officer under the circumstances was wrong. The relevant part of the observations made by the Tribunal (supra) in the identical facts and circumstances of the case or to say in identical set of reasons recorded is reproduced as under: - “In our considered view, considering the facts of the present case, we hold that the AO has assumed jurisdiction relying upon nonspecific routine information blindly without caring to first independently consider the specific facts of the assessee's case. The AO in his wisdom, instead of caring to refer to the facts of the case at hand which he ought to have first considered, has instead considering the facts as considered by the ITAT in the case of Som Nath Maini and that too without first caring to establish that the facts are identical which we note infact are entirely

ITA No. 1374-Chd-2019- M/s Kaur Sain Spinning & Weaving Mills Ltd., Ludhiana 9 distinguishable has further compounded the mistake by meandering through the case laws and decisions in entirely different set of facts and circumstances and instead attempted to write a thesis on what would constitute “information”. Instead of referring in the reasons recorded to the specific facts of assessee's case for justifying the assumption of jurisdiction, the AO addresses the legal position on what would constitute information.” 11. In view of the above discussion, in our view, the Assessing Officer has wrongly and illegally assumed jurisdiction in this case to reopen the assessment. The reasons pointed out by the Assessing Officer cannot be said to be the reasons “to form the belief” that income of the assessee had escaped assessment. In view of this, since the assessment order framed by the Assessing Officer is not sustainable in the eyes of law, the same is accordingly quashed. Since we have decided the legal issue in favour of the assessee, whereby, we have quashed the assessment order, hence, at this stage, we do not deem it appropriate to go into the merits of the case which have been rendered academic in nature. In view of the discussion made above, the appeal of the assessee stands allowed.” 13. Under section 147 of the Act, AO has power to reopen an assessment if he/she has reason to believe that any income chargeable to tax has escaped assessment. As per the settled law, the AO has to record the reasons for initiating action under section 147 of the Act. Since, validity of the proceedings has to be decided on the basis of reasons recorded by the AO, the reasons recorded must have a live link with the formation of belief that income of the assessee has escaped assessment. Further, AO has no jurisdiction under section 147 of the Act to reopen the assessment after expiry of four years from the end of the relevant assessment year unless the income chargeable to tax

ITA No. 1374-Chd-2019- M/s Kaur Sain Spinning & Weaving Mills Ltd., Ludhiana 10 has escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of his income. In the present case, though the AO had issued notice u/s 148 of the Act after obtaining sanction from the concerned authority, yet it is apparent that the AO has issued notice under section 148 of the Act on the basis of the information received from the department. AO has not pointed out as to how the investment in question is the unexplained income of the assessee. As has been held by the coordinate Benches in the aforesaid cases, action taken under section 147 on the basis of borrowed satisfaction is bad in law. Since the material for forming belief in the present case are similar to the material available in the aforesaid cases, and the coordinate Benches have decided the identical issue in favour of the assessee, we find merit in the contention of the Ld. Counsel that the AO has initiated proceedings u/s 147 read with section 148 of the Act on the basis of information received from the department without application of his mind. In our considered view, the assessee’s case is covered by the decisions rendered by the coordinate Bench in the case of M/s century Fiscal Services Ltd. Vs. ITO and M/s Indo Global Techno Trade Limited vs. ITO (supra). Hence, respectfully following the decisions of the coordinate Benches, discussed above, we hold that the AO has assumed the jurisdiction under section 147 of the Act in a

ITA No. 1374-Chd-2019- M/s Kaur Sain Spinning & Weaving Mills Ltd., Ludhiana 11 mechanical manner, therefore the order passed by the AO is liable to be quashed. We accordingly, allow the appeal of the assessee and quash the order passed by the AO. 14. Since we have quashed the reassessment proceedings initiated by the AO on legal ground discussed in the foregoing paras, the alternative plea of the assessee that the AO should have taken action u/s 153 C of the Act has become academic, therefore we do not deem it necessary to adjudicate the said issue. In the result, appeal of the assessee is allowed. Order pronounced on 16/04/2021.

Sd/- Sd/- ( N.K. SAINI) (R.L.NEGI) उपा�य� /Vice President �या�यक सद�य/ Judicial Member Dated : 16.04.2021 “आर.के.” आदेशक���त�ल�पअ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकरआयु�त/ CIT 4. आयकरआयु�त (अपील)/ The CIT(A) 5. �वभागीय��त�न�ध, आयकरअपील�यआ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड�फाईल/ Guard File आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar