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Facts
The Revenue appealed against the deletion of an addition made on account of alleged unexplained share capital, which was originally made during reassessment proceedings initiated based on information from a search and seizure operation. The assessee had filed cross-objections challenging the initiation of reassessment.
Held
The Tribunal held that the reassessment proceedings were bad in law because the notice under Section 148 was issued without satisfying the preconditions of Section 147 and the approval for reopening was mechanical, lacking application of mind. The reliance on stale information and the absence of transactions with the identified group in the relevant year were also noted.
Key Issues
Whether the initiation of reassessment proceedings under Section 147/148 of the Income Tax Act was valid due to mechanical approval and stale information? Whether the disallowance of salary was contrary to Section 40A(2)?
Sections Cited
147, 148, 153C, 271(1)(c), 40A(2), 151
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES: C : NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
ITA No.1957 & 7032/Del/2019 CO No.126/Del/2023 ORDER
PER ANUBHAV SHARMA, JM:
This appeal preferred by the Revenue is against the order dated 27.12.2018 of the Commissioner of Income-tax (Appeals)-27, New Delhi (hereinafter referred to as the Ld. First Appellate Authority or ‘the Ld. FAA’, for short) in Appeal No.309/17-18 arising out of the appeal before it against the order dated 26.12.2017 passed u/s 147/143(3) r.w.s. 153C of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ACIT, CC-18, New Delhi (hereinafter referred to as the Ld. AO). The assessee has filed Cross Objection. The appeal filed by the assessee in is against the order dated 18.06.2019 of the Ld. FAA in Appeal No.309/17-18 arising out of the appeal before it against the penalty order passed u/s 271(1)(c) of the Act by the Ld. AO.
On hearing both the sides, we find that the assessee has filed Cross Objections and has raised the following grounds:- “
1. That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in upholding the initiation of the reassessment proceedings failing to appreciate that the notice under section 148 of the Act had been issued by the learned Assessing Officer without satisfying the statutory preconditions as envisaged under section 147 of the Act, and hence initiation of the reassessment proceedings is bad in law.
2. That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in failing to appreciate that reasons to believe are justiciable and for the reopening of the assessment, only reasons recorded has to be looked into, and no more and to justify the reopening of the assessment, burden is on the revenue and unless such burden is discharged, order of assessment passed u/s 147 of the Act is unsustainable in law. 2 & 7032/Del/2019 CO No.126/Del/2023
3. That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in failing to appreciate that approval has been granted mechanically, and such a mechanical sanction is without application of mind and while granting approval u/s 151 of the Act, the sanctioning authority had neither verified the record nor had applied his mind.
4. That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in disallowing the part salary of two directors on adhoc basis on the grounds of being excessive which is contrary to the provisions of Section 40A(2) of the Act.”
As with regard to these grounds, heard at first, we find that the assessee’s return of income was filed by the assessee on 31.03.2011 and earlier a notice u/s 153C was issued on 13.02.2013. The assessment was completed on 28.03.2013. the copy of the assessment order is available at pages 39-46 of the paper book and the same shows that the search assessment was initiated against the assessee as a result of search undertaken on M/s Jagat Agro Commodities Pvt. Ltd. and an addition of Rs.5 crore was made on account of alleged unexplained share capital received from M/s Transnational Growth Fund Ltd. The same AO in the assessment order passed in the case of M/s Jagat Agro Commodities Pvt. Ltd. has held the assessee to be accommodation entry providing company, but, no addition was made. This addition of Rs.5 crore was deleted by the ld.CIT(A) by order dated 28.10.2013, copy of which is placed at pages 47 to 109 of the paper book and the Revenue’s appeal was dismissed by the Tribunal, a copy of the order dated 26.08.2016 is placed at pages 110 to 234 of the paper book. The Hon’ble Dlhi High Court had dismissed the appeal of the Revenue. It comes up that, on 31.03.2017, notice u/s 148 of the Act was issued and the copy of which & 7032/Del/2019 CO No.126/Del/2023 is available at page 135 of the paper book. The reasons recorded were provided to the assessee and the copy of the which is placed at pages 151A to 151B of the paper book and we have gone through the same. The same make it apparent that on the basis of information received from DDIT (Inv.), arising out of search and seizure operation in the premises of M/s KRBL, the assessee was found to be an accommodation entry provider to KRBL group of companies. Reference is also made to the survey operation conducted in the premises of M/s Jagat Agro Commodities Pvt. Ltd. and based on the transactions allegedly found to be doubtful, the AO observes that being an accommodation entry provider, the assessee “must have charged commission of minimum 2% on accommodation entries” and, accordingly, in the impugned assessment, an addition was made which has been deleted by the ld.CIT(A) by observing that the assessee is an NBFC company and that there were no transactions with KRBL during the impugned assessment year as has been alleged in the reasons.
Now, going based on these facts and circumstances, as we appreciate the copy of reasons recorded dated 28.08.2017 available at page 151A of the paper book which also has an approval dated 30.03.2017 at page 151B of the paper book, the approval has been granted by the competent authority by merely writing on the order sheet “Approved.” The aforesaid discussion of the previous assessment being completed u/s 153C of the Act in the case of the assessee and also Jagat Agro Commodities Pvt. Ltd. and the manner in which & 7032/Del/2019 CO No.126/Del/2023 the reasons for reopening dated 28.08.2017 have been recorded, the approval granted by endorsing words “Approved” is quite mechanical. It is also sufficiently established that had the competent authority gone through the material on record and would have appreciated that no transaction with KRBL group was found during the relevant assessment year, still, a reopening was being done on that basis, the approval may not have been given at first instance. Such mechanical approvals are not approved and have been made basis for setting aside the reopening. Reliance can be placed on the judgement of the Hon’ble Delhi High Court in the case of Shourya Infrastructure Pvt. Ltd. vs. ITO in WP(C) No.12709/2018 and in the case of Vinod Kumar Solanki vs. CIT, reported in 166 taxmann.com 71.
The aforesaid discussion also establishes that the reopening is based on stale information and the ld.CIT(A) has duly appreciated the facts and circumstances. The ld. CIT(A) has thoroughly examined the voluminous documentary evidences to conclude that the assessee was declaring substantial income in the past and also in the subsequent assessment years and is a genuine company. Therefore, the non-application of mind at the time of reopening also is duly established.
In the light of the aforesaid, we are inclined to sustain the grounds No.1 to 3 as raised by the assessee in CO. The assumption of jurisdiction stands vitiated and consequently, the assessment order and the penalty order based on & 7032/Del/2019 CO No.126/Del/2023 the same get vitiated. The cross objections are allowed. The appeal of the assessee in against the penalty order is also allowed and the appeal of the Revenue in