ITO, WARD- 21(4), NEW DELHI vs. RUKMINI IRON PVT. LTD., DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F : NEW DELHI BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ITA No.550/Del/2018 Assessment Year: 2009-10 ITO, Vs. Rukmini Iron Pvt. Ltd., Ward-21(4), X-55/102, Loha Mandi, New Delhi. Naraina, Delhi. PAN: AACCR7910H CO No.66/Del/2018 (ITA No.550/Del/2018) Assessment Year: 2009-10 Rukmini Iron Pvt. Ltd., Vs. ITO, X-55/102, Loha Mandi, Ward-21(4), Naraina, New Delhi. Delhi. PAN: AACCR7910H (Appellant) (Respondent) Assessee by : Shri Suresh Gupta, CA Revenue by : Shri Ramdhan Meena, Sr. DR Date of Hearing : 29.08.2022 Date of Pronouncement : 20.09.2022 ORDER PER C.M. GARG, JM: This appeal filed by the Revenue is directed against the order dated 26.10.2017 of the CIT(A)-38, Delhi, relating to Assessment Year 2009-10. In this case, the assessee has filed a Cross Objection.

ITA No.550/Del/2018 CO No.66/Del/2018 2. The grounds of appeal raised by the Revenue read as under:- “1. "On the facts and under the circumstances of the case, the Ld CIT(A) has erred in law and facts in deleting the addition of Rs. 2,40,00,000/- made by the AO u/s 68 of Income Tax Act, 1961, ignoring the decision of the Ld. CIT (A) in the case of Surender Kumar Jain (S. K. Jain) wherein, it is held that Jain brothers are equally involved in the accommodation entry business and maintain the documents and record. " 2. "On the facts and under the circumstances of the case, the Ld CIT(A) has erred in law and facts in deleting the addition of Rs 2,40,00,000/- under section 68 of the Act by ignoring the Ratio decidendi in the case of CIT vs. M/s N. R. Portfolio Pvt. Ltd. (2014), 2 ITR-OL-68 and PCIT-7 vs. Bikram Singh in IT A NO. 55/2017 dated 25/08/2017 on identical issue of addition as unexplained Share Capital u/s 68 of the IT Act. 3 The appellant craves to be allowed to add and alter any fresh grounds(s) of appealand/or delete or amend any of the ground(s) of appeal."

ITA No.550/Del/2018 CO No.66/Del/2018 4. That on the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals) has failed to appreciate both in law and on facts that the reasons recorded by the A.O. were vague therefore, initiation of reassessment proceeding is bad in law and may please be annulled. 5. That on the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals) has failed to appreciate both in law and on facts that there was no material having live nexus with the foundation of belief, therefore, initiation of re-assessment proceeding is bad in law and may please be annulled. 6. That on the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals) has erred both in law and on facts in confirming the validity of re assessment proceedings which was initiated without complying the mandatory conditions of section 147 to 153 of the Income Tax Act, 1961 and reopening of the case is bad in law and may please be annulled. 7. That on the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals) has erred both in law and on facts in confirming the validity of proceedings initiated u/s 147/148 and failed to appreciate that there were “no material” on record to believe that income of the assessee has escaped assessment for the A.Y.2009-10. 8. That the Ld. Commissioner of Income Tax (Appeals) has failed to appreciate the fact that order dt. 28/12/2016 for disposing the objection for re-opening of assessment was not in accordance with law and has not dealt with all the objections raised by the assessee. Therefore, impugned assessment order is bad in law and may please be annulled. 9. That on the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals) has failed to appreciate both in law and on facts that the notice u/s 143(2) was not served within the stipulated period prescribed u/s 143(2) of I.T. Act, hence the impugned assessment order is invalid and bad in law and may please be annulled.”

ITA No.550/Del/2018 CO No.66/Del/2018 Cross Objection of the Assessee

ITA No.550/Del/2018 CO No.66/Del/2018 (iv) No valid notice u/s 148 was issued and served on the assessee; (v) Non-application of independent mind by the AO while assuming jurisdiction to proceed with reassessment before supply of reasons which were based on mistakes of facts; (vi) The AO has initiated action u/s 147 of the Act based on the information forwarded by the Investigation Wing on 14.03.2013 related to search operation in the case of Shri S.K. Jain group on 14.09.2010 and the material found in search indicated involvement of the group in the activities of providing accommodation entries through bogus/benami entities, but, the AO did not apply his mind to the material and did not discuss how prima facie belief of accommodation entry is reached when no evidence/material regarding the payment of cash in lieu of cheques to searched group is discussed which clearly shows non-application of mind by the AO and in absence of any specific discussion of material on the basis of which independent prima facie belief is reached that income has escaped assessment, mere reproduction of information is not sufficient to meet the requirement of section 147 of the Act. The ld. AR has relied on the judgement of the Hon’ble High Court of Delhi in the case of CIT vs. Meenakshi Overseas, 395 ITR 677 (Del) and other judgements.

ITA No.550/Del/2018 CO No.66/Del/2018 5. The ld. Sr. DR, on the other hand, vehemently supporting the action of the AO initiating the reassessment proceedings u/s 147 of the Act and issuing notice u/s 148 of the Act, drew our attention to the reasons recorded by the AO on 17.03.2016 available at pages 34-48 of the assessee’s paper book and submitted that in para 15.1, the AO has clearly mentioned that the assessee has not disclosed fully and truly all material facts necessary for its assessment for AY 2009-10. Therefore, the allegation of the ld. AR regarding non-compliance of first proviso to section 147 is baseless and the same should be dismissed.

ITA No.550/Del/2018 CO No.66/Del/2018 in the law. He also submitted that the AO cannot be debarred from initiating the proceedings u/s 147 of the Act merely because the material so gathered was outcome of a search and seizure operation.

ITA No.550/Del/2018 CO No.66/Del/2018  Documents containing the details of funds transferred through cheque/ RTGS pay order to various entities/persons through these entries provider.  Seizure of daily cash books wherein details of cash received from beneficiary companies/ persons through various middlemen agents by Jain Brothers in lieu of accommodation entries provided to beneficiary on different dates. • That entry provider companies were running their activities from the residential and the other premises of Sh. Surendra Kumar Jain and Sh. Virendra Kumar Jain through entry provider companies. • That third party correspondence with entry provider companies were seized from the. Custody of Sh. Surendra Kumar Jain and Sh. Virendra Kumar Jain. • That S.K. Jain / Virendra Jain and there close associates were directors of these entry provider companies during relevant but different time period. • Seizure of documents had revealed that commission- income was earned by Jain Brothers and mediator. d. It was further proved that evidence relating to all the steps involved in providing accommodation entries by entry provider companies in lieu of cash payment to Jain Brothers on charging commission were seized from custody and control of Jain Brothers. e. A perusal of documents as seized from the premises of Shri S.K. Jain Group has revealed that accommodation entry amounting to Rs. 2,40,00,000/-, (copy enclosed) was taken by the assessee Co., i.e. M/s Rukmini Iron Pvt. Ltd from S.K. .lain Group Companies. The particulars of which are as under:-

ITA No.550/Del/2018 CO No.66/Del/2018

ITA No.550/Del/2018 CO No.66/Del/2018

ITA No.550/Del/2018 CO No.66/Del/2018

Similarly, in the cash book maintained by Jain brothers, there is corresponding entry made against name of mediator of having received cash from him equivalent to the amount of cheques issued to same mediator. 15. A careful examination of information received from the Investigation Wing and subsequent analysis of report of invesugatron wing, copies of seized document and verification of assessment and appeal order in case of Jain Brothers lead to an irresistible conclusion that the assessee had received share capital/loan of Rs. 2,40,00,000 from companies/entities engaged in business of providing accommodation entries by charging commission in lieu of cash payment by beneficiary assessee, accordingly, an amount of Rs.2,40,00,000 represents unexplained credit u s 68 of the Act in books of A/c of the assessee. 15.1 In view of the facts narrated above, it is clear that the assessee has not disclosed fully & truly all material facts necessary for its assessment for the assessment year 2009-10. I have therefore, reasons to believe that entry found in seized cash/ Cheque book of Jain brothers is nothing but an accommodation entry & assessee Company is beneficiary thereof. I have reason to believe that income of Rs. 2,40,00,000/- has escaped assessment in the A.Y. 2009-10, which includes commission @ 2%. 16. Since, the assessment/re-assessment proceedings in this case for A.Y. 2009-10 pertain to a period beyond four years but before the expiry of six years from the date of issue of notice, necessary sanction has to be obtained from Pr. 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-07. Delhi, before the issue of notice u/s. 148.”

ITA No.550/Del/2018 CO No.66/Del/2018 8. In view of the above, we observe that in para 14, the AO has noted some factual matrix of search and seizure on Shri S.K. Jain group and his brothers and, thereafter, tabulated the names of alleged accommodation entry providers wherein the name of the assessee has been mentioned against various companies of S.K. Jain group. In para 15, the AO noted that on examination of information received from Investigation Wing and subsequent analysis of the Investigation Wing, copies of the seized documents and verification of assessee and appeal order in the case of Jain Brothers led to an irresistible conclusion that the assessee has received share capital/loan of Rs.2,40,00,000/- from bogus entities engaged in the business of providing accommodation entries. Accordingly, the impugned amount represents unexplained credit u/s 68 of the Act in the books of account of the assessee. Thereafter, in para 15.1, the AO noted that it was clear that the assessee has not disclosed fully and truly all material facts necessary for its assessment for assessment year 2009-10. Therefore, he has reason to believe that entry found and seized cash/cheque book of Jain Brothers is nothing, but, an accommodation entry and the assessee company is beneficiary thereof. At para 16, the AO noted that the assessment/reassessment proceedings for AY 2009-10 pertained to a period beyond four years, but, before the expiry of six years from the date of issuance of notice, necessary sanction has been obtained from the ld.PCIT and notice u/s 148 of the Act was issued.

ITA No.550/Del/2018 CO No.66/Del/2018 9. The ld. AR placed vehement reliance on various judgements including the judgement of the Hon’ble jurisdictional High Court of Delhi in the case of BPTP Ltd. vs. PCIT dated 28.11.2019 in WP (C) 13803/2018 and other connected Writ Petitions and judgement of Hon’ble High Court of Bombay in the case of Anand Developers vs. ACIT, dated 18.02.2020 in WP No.17 of 2020 to submit that mere bald allegation against the assessee that the assessee has not truly and fully disclosed all material facts necessary for assessment is not sufficient to meet the requirement of first proviso to section 147 of the Act. The ld. AR has submitted that the compliance of proviso to section 147 of the Act solely depends on verification of facts/material disclosed during the course of assessment proceedings, but, there is no discussion in the reasons recorded by the AO. He further submitted that the ld.CIT(A) has given a finding that the appellant had made full disclosure of all material facts on the impugned share subscription received from nine entities, therefore, the bald allegation of the assessee cannot be taken into consideration as compliance to proviso to section 147 of the Act. On this legal issue, the ld. DR submitted that the mentioning in para 15.1 of the reasons is sufficient to comply with the requirement of first proviso to section 147.

ITA No.550/Del/2018 CO No.66/Del/2018 using the expression ‘failure on the part of the assessee to disclose fully and truly all material facts’ do not specify as to what is the nature of default or failure on the part of the assessee. The relevant paras read as follows:- “22. Reading of the proviso to Section 147 and the decisions of this Court discussed above makes it amply clear that after a period of four years from the end of the Assessment Year, for the AO to assume jurisdiction, it becomes necessary that income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the Assessee to make a return, or to disclose all material facts necessary for that assessment year. 23. We find force in the submissions advanced by Mr. Kaushik that in the present case, the test for reopening the assessment as per proviso to Section 147 has not been met. The questionnaire raised by the AO during the course of assessment proceedings categorically adverted to the question of withholding tax. The details of the TDS paid and EDC charges were available with the AO. Revenue has sought to contend that even if the AO could have, with due diligence, discovered material from the tax audit report, it does not necessarily mean that the petitioner had made a full and true disclosure of material facts. The mere production of evidence before AO is not enough and there may be a failure to make full and true disclosure, if some material for the assessment lies embedded in that evidence which the AO could uncover, but did not do so. The aforesaid submissions may be correct proposition in law; however, each case has to turn on its own facts. In the present case, the details of the TDS and EDC charges paid to HUDA were brought to the notice of the AO. On this question, it would be sufficient to refer to the decision of this Court in Donaldson India Filters Systems Pvt. Ltd. vs. DCIT, (2015) 371 ITR 87 (Del. In the said case, the Court held that the explanation clarifies the general refrain by the words “not necessarily”. Burden is equally placed on the AO to exercise due diligence in examining the record (account books or evidence) produced before him in light of the declarations made in the return or responses to the notices or questionnaires. This is necessary as the AO has to gather “tangible” material which is a pre-requisite for reopening the matter under Section 147 of the Act. In CIT v. Central Warehousing Corporation, (2015) 371 ITR 81 (Del.), the Court held that the expression “reason to believe” on which a re- assessment under Section 147 of the Act can be validly ordered should

ITA No.550/Del/2018 CO No.66/Del/2018 necessarily be based on “tangible material” which an AO comes by after original assessment. 24. It would also be profitable to refer to the decision of Central Warehousing Corporation (supra) and CIT vs Kelvinator of India Ltd., (2002) 256 ITR 1and CIT vs. Usha International Ltd., 348 ITR 485 (Del.) and several other decisions wherein it has been repeatedly held that reopening initiated without any failure on the part of the Assessee in fully and truly disclosing all material facts without any fresh tangible material deserves to be quashed. In view of the aforesaid test laid down by this Court for re-opening of the assessment in cases where proviso to Section 147 of the Act is attracted, we find that in the present case, the test is not met. It is well settled proposition under the Income Tax Act that merely a change of opinion would not give the AO the jurisdiction to reopen the assessment under Section 147/148, as the same would amount to reviewing the earlier decision. There has to be some relevant tangible material for the AO to come to the conclusion that there is escapement of income from assessment, and there must be a live link with such material for the formation of the belief. The reasons should also disclose due application of mind as reopening of the assessment proceeding is not an empty formality. On a perusal of the recorded reasons, we are not able to discern as to how the AO has come to a conclusion that there is a failure on the part of the Assessee in fully and truly disclosing all material facts for the purpose of the assessment. Though, the recorded reasons allude to an ostensible failure on the part of the Assessee to disclose fully and truly all material facts, however, the recorded reasons except for using the expression “failure on the part of the Assessee to disclose fully and truly all material facts”, do not specify as to what is the nature of default or failure on the part of the Assessee. The reasons also do not explain or specify as to what is the rationale connection between the reasons to believe and the material on record. The Supreme Court in Income Tax Officer v. Techspan Pvt. Ltd And Ors. (2018) 6 SCC 685 has held that “The use of the words “reason to believe” in Section 147 has to be interpreted schematically as the liberal interpretation of the word would have the consequence of conferring arbitrary powers on the assessing officer who may even initiate such re-assessment proceedings merely on his change of opinion on the basis of some facts and circumstances which has already been considered by him during the original assessment proceedings. Such could not be the intention of the legislature.” The said judgment further held that “Section 147 of the IT Act does not allow the reassessment of an 15

ITA No.550/Del/2018 CO No.66/Del/2018 income merely because of the fact that the assessing officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would have the effect of giving the assessing officer the power of review and Section 147 confers the power to reassess and not the power to review.” 25. It becomes evident on perusal of the Scrutiny questionnaires issued by the AO and the information furnished in response thereto by the Assessee that there has been no failure on the part of the Assessee in furnishing the information. On the other hand, there appears to be non application of mind on such material on the part of the AO to make an appropriate determination in accordance with law. Thus, the AO cannot now review its decision, having failed to perform its statutory duty and therefore the impugned action of reopening is nothing but a change of opinion.”

ITA No.550/Del/2018 CO No.66/Del/2018 that the assessee did not disclose fully and truly all the material facts is not sufficient, the AO has to give the details as to which fact or the material fact was not disclosed by the assessee leading to its income escaping assessment. Otherwise, reopening is not valid. From the facts and circumstances emerged from the reasons recorded, it is clearly discernible that except a bald allegation in para 15.1 that the assessee has not disclosed fully and truly all material facts necessary for its assessment, there is no indication by the AO as to how the assessee has failed to fully and truly disclose all the material facts with regard to the impugned amount of alleged accommodation entry. Per contra, the ld.CIT (A), in para 2.4.1 has noted that the appellant furnished the details which included the complete details of impugned share subscription money. These findings have not been challenged by the Revenue as clearly discernible in the grounds raised by the assessee in Form No.36.

ITA No.550/Del/2018 CO No.66/Del/2018 Act. If this condition precedent is not satisfied, the bar would operate and no action u/s 147 of the Act can be initiated against the assessee for reassessment proceedings. At the cost of repetition, we may point out that the reasons supplied to the Petitioners, operative part of which has been reproduced hereinabove, does not contain any such allegation. Consequently, one of the conditions precedent for removing the rider against taking action u/s 147 of the Act after a lapse of four years remains unfulfilled and unsatisfied and in absence of any allegation in the reasons recorded that the escapement of income had occurred by the reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year, any action taken by the AO u/s 147 of the Act beyond the period of four years would be without assumption of valid jurisdiction. Therefore, respectfully following the proposition rendered by the Hon’ble Delhi High Court in the case of BPTP Ltd. (supra); in the case of Haryana Acrylic Manufacturing Company Ltd. vs. CIT, 308 ITR 38 (Del), order dated 1st July, 2020 (supra); and judgement of the Hon’ble Bombay High Court in the case of Anand Developers (supra), we hold that the notice dated 28.03.2016 u/s 148 of the Act based on the reasons recorded on 17.03.2016 and the consequent reassessment order dated 30.12.2016 are without jurisdiction as no action u/s 147 of the Act could be taken beyond the period four years in absence of compliance of proviso to section 147 of the Act. We hold so.

ITA No.550/Del/2018 CO No.66/Del/2018 13. Therefore, the Cross Objection No.1 of the assessee is allowed and the impugned initiation of reassessment proceedings u/s 147 of the Act, notice u/s 148 of the Act dated 28.03.2016 and the consequent reassessment order u/s 143(3) r.w.s.147 of the Act dated 30.12.2016 are quashed being bad in law and passed without assuming valid jurisdiction.

ITA No.550/Del/2018 CO No.66/Del/2018 Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi