BALJIT KAUR ,HYDERABAD vs. DY. COMMISSIONER OF INCOME TAX , CIRCLE-16(2), HYDERABAD

Brief facts of the case are that the assessee, an individual, filed his return of income for the AY 2011-12 on 29/09/2011 admitting income of Rs. 85,42,110/-, which was processed u/s 143(1) of the Act.

Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A) and the CIT(A) after considering the submissions of the assessee, dismissed the appeal of the assessee.

Still aggrieved, the assessee is in appeal before the ITAT.

Before us, the ld. AR of the assessee submitted that the AO before reopening the case has not complied with the provisions of section 147/148 and the precedence in this regard. He submitted that the AO was not justified in reopening the case beyond the four years and he has reopened the case on the basis of information received from the Investigation Wing without applying his mind. Further, he submitted that the assessee is a registered company and filing returns of income regularly and the amount has been received through banking channels, therefore, there is no violation of provisions of section 68 of the Act as alleged by the AO in this regard.

The ld. DR, on the other hand, relied on the orders of revenue authorities.

After hearing both the parties and perusing the material on record as well as gone through the orders of revenue authorities and the grounds taken by the assessee, we observe that the assessee has taken a legal ground in Ground No. 4 that the assessee’s case has been reopened on the basis of information received from third party. The crux of the issue to be decided is whether the reopening of assessment by the AO is in accordance with law or not. As per the assessment order, it is clear that the assessee’s case is reopened on the basis of the information received from the Director of Investigation and without applying his mind, the AO has reopened the case of the assessee. Similar issue has been decided by Hon’ble Courts in the following cases: “1. CIT v, Kamdhenu Steel & Alloys Ltd. (2012) 248 CTR 33 (Delhi)(High Court). 2. CIT v, Multiplex Trading & Industrial Co Ltd (2015) 128 DTR 217 (Delhi)(HC). 3. Pr. CIT v G. Pharma India Ltd.[2017] 384 ITR 147 (Delhi) (HC). 4. CIT vs Insecticides (India) Ltd. (2013) 357 ITR 300 (DeI.)(HC) 5. CIT Vs. Meenakshi Oversea's Pvt Ltd (2017) 395 ITR 677(Del) (HC) 6. CIT vs. Fair Invest Ltd. (2013) 357 ITR 146 (DeI.)(HC) 7. Sarthak Securities Co. (p.) Ltd. vs. ITO (2010) 329 ITR 110.” 7.1 In the case of CIT v, Kamdhenu Steel & Alloys Ltd. (2012) 248 CTR 33 (Delhi)(High Court), the Hon’ble Delhi High Court held as under:

It is under these circumstances, these appeals are filed for these assessment years. We shall first take up the facts regarding validity of notice under Section 148 of the Act. Learned counsel for the assessee argued that this notice was admittedly issued beyond four years from the date of assessment order and there was nothing on record to show that the assessee had not disclosed all material particulars or had suppressed any information. He pointed out that in the 'reasons to belief' furnished by the AO, the AO had merely referred to certain investigation carried out by the Directorate of Income Tax (Investigation) in respect of bogus/accommodation entries provided by certain individuals/companies. The AO, according to him, the reading of these reasons clearly indicated that the AO had not applied his own mind to the issue or carried out any incumbent verification before issuing the notice.

Furthermore, after extracting the aforesaid particulars, the AO recorded following reasons: "3. In view of the above information, it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries. Therefore, I have reasons to believe that the income amounting to Rs. 43,65,776/- has escaped assessment, which is required to be assessed to tax under the provision of Section 147 of the I.T. Act, 1961."

It is clear from the above that the AO acted mechanically on the information supplied by the Directorate of Income Tax (Investigation) without applying his own mind. He did not even care to see the apparent mistake in the particulars where three entries were repeated twice each. Almost on identical facts, a Division Bench of this Court set aside such a notice under Section 147/148 of the Act in the case Sarthak Securities Co. (P.) Ltd. v. ITO [2010] 329 ITR 110/195 Taxman 262 (Delhi). After taking note of various judgments delineating the scope of Section 148 of the Act as well as law regarding undisclosed income under Section 68 of the Act, the Court held that:

Similar view is taken by another Division Bench of this Court in CIT v. SFIL Stock Broking Ltd. [2010] 325 ITR 285. In that case also, the AO had recorded the reasons to believe in similar manner, viz., more information received from the Deputy Director of Income Tax (Investigation) and the Court took the view that these were no reasons within the meaning of Section 148 of the Act. Following discussion in this behalf needs to be noted: "9. In the present case, we find that the first sentence of the so-called reasons recorded by the Assessing Officer is mere information received from the Deputy Director of Income Tax (Investigation). The second sentence is a direction given by the very same Deputy Director of Income Tax (Investigation) to issue a notice under Section 148 and the third sentence again comprises of a direction given by the Additional Commissioner of Income Tax to initiate proceedings under Section 148 in respect of cases pertaining to the relevant ward. These three sentence are followed by the following sentence, which is the concluding portion of the so-called reasons:- "Thus, I have sufficient information in my possession to issue notice u/s 148 in the case of M/s SFIL Stock Broking Ltd. on the basis of reasons recorded as above."

From the above, it is clear that the Assessing Officer referred to the information and the two directions as "reasons" on the basis of which he was proceeding to issue notice under Section 148. We are afraid that these cannot be the reasons for proceeding under Section 147/148 of the said Act. The first part is only an information and the second and the third parts of the beginning paragraph of the so-called reasons are mere directions. From the so- called reasons, it is not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, we find that the Tribunal has arrived at the correct conclusion on facts. The law is well settled. There is no substantial question of law which arises for our consideration. The appeal is dismissed."

There is another recent judgment dated 21.7.2011 of this Court in Signature Hotels (P) Ltd. v. ITO [W.P.(C) No. 8067 of 2010 on dated 21-7-2011]. That was also a case where the notice was issued on the basis of information received from Directorate, Income Tax (Investigation). The Court first set out the approach that is to be adopted in such cases, by mentioning as under in para 12: "12. In these circumstances, we are examining the reasons given by the Assessing Officer in the proforma seeking permission/approval of the Commissioner and whether the same satisfy the pre-conditions mentioned in Section 147 of the Act."

On examination, the Court set aside the notice under Section 148 of the Act and in the process, discussion therein is as under: "14. The first sentence of the reasons states that information had been received from Director of Income- Tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lacs during financial year 2002- 03 as per the details given in Annexure. The said Annexure, reproduced above, relates to a cheque received by the petitioner on 9th October, 2002 from Swetu Stone PV from the bank and the account number mentioned therein. The last sentence records that as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary.

The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the information received from the Director of Income-Tax (Investigation) and arrive at a belief whether or not any income had escaped assessment.

It may be noted here that a company by the name of Swetu Stone Pvt. Ltd. had applied for and was allotted shares in the petitioner company on payment by cheque of Rs. 5 lacs. As noticed above, in the Annexure the name of the company/account holder is mentioned as Swetu Stone PV. The same is also mentioned in the undated reasons mentioned above.

In the counter affidavit it is stated that M/s Swetu Stone Pvt. Ltd. had applied for allotment of shares worth Rs. 5 lacs and the same were allotted by the petitioner. It is further stated that statements of Mahesh Garg and Shubhash Gupta were recorded by the Director of Income- Tax (Investigation) and on the basis of the statements they have come to the conclusion that the said persons were entry operators. Copy of the statements of Mahesh Garg and Shubhash Gupta have not been placed on record by the respondent. The petitioner, has, however, enclosed copy of statements of Mahesh Garg and Shubhash Gupta recorded on different dates. The said persons have not specifically named the petitioner though other parties have been named and details have been given and it is stated that they were provided accommodation entries. However, it is stated that the entries were made by giving cheque/DD/PO after receiving cash and sometimes expenses entries were provided. The reasons recorded by the Assessing Officer do not make reference to any statement of Mahesh Garg or Shubhash Gupta. This may not also be necessary, if the statements were on record and it is claimed and prima facie established that they were examined by the Assessing Officer before or at the time of recording reasons. On the other hand, in the present case, information as enclosed as Annexure, has been referred. This is the only material relied upon by the Assessing Officer. The said Annexure has been quoted above. In this connection, we may notice that M/s Swetu Stone Pvt. Ltd. is an incorporated company and the petitioner has pleaded and stated that the said company has a paid-up capital of Rs. 90 lacs. The company was incorporated on 4th January, 1989 and was also allotted a permanent account number in September, 2001. To this extent, there is no dispute. In these circumstances, we feel the judgments of the Delhi High Court in Commissioner of Income Tax v. SFIL Stock Broking Limited, [2010] 325 ITR 285 (Delhi) and Sarthak Securities Company Private Limited v. Income Tax Officer, 2010 (329) ITR 110 (Delhi), in which CIT v. Lovely Exports (P) Limited, (2009) 216 CTR 195 (SC) has been applied and followed, are applicable. We may notice here that the respondent in their counter affidavit have stated that Swetu Stone Pvt. Ltd. is unidentifiable and, therefore, the aforesaid decisions should not be applied and the ratio of the decision dated 7th January, 2011 in Writ Petition (Civil) No. 7517/2010, AGR Investment Limited v. Additional Commissioner of Income Tax and Another should be applied. In the said decision, decisions in the case of Sarthak Securities Company Private Limited (supra) and SFIL Stock Broking Limited (supra) was distinguished by giving the following reasons: "22. ….In SFIL Stock Broking Ltd. (supra), the bench has interfered as it was not discernible whether the assessing officer had applied his mind to the information and independently arrived at a belief on the basis of material which he had before him that the income had escaped assessment. In our considered opinion, the decision rendered therein is not applicable to the factual matrix in the case at hand. In the case of Sarthak Securities Co. Pvt. Ltd. (supra), the Division Bench had noted that certain companies were used as conduits but the Assessee had, at the stage of original assessment, furnished the names of the companies with which it had entered into transaction and the assessing officer was made aware of the situation and further the reason recorded does not indicate application of mind. That apart, the existence of the companies was not disputed and the companies had bank accounts and payments were made to the Assessee company through the banking channel. Regard being had to the aforesaid fact situation, this Court had interfered. Thus, the said decision is also distinguishable on the factual score."

The facts indicated above do not show that M/s Swetu Stone Pvt. Ltd. is a non-existing and a fictitious entity/person. Decision in AGR Investment Limited (supra), therefore, does not help the case of the respondent.

For the reasons stated above, the present writ petition is allowed and writ of certiorari is issued quashing the proceedings under Section 148 of the Act. In the facts of the case, there will be no order as to costs."

In the result, appeal of the assessee is allowed. Pronounced in the open court on 28th June, 2021.