DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-27, DELHI, DELHI vs. NKG INFRASTRUCTURE LIMITED, DELHI

5. Aggrieved with the above order, both the assessee as well as Revenue are in appeal before us raising following grounds of appeal :- “REVENUE’S APPEAL ( )

1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.134,22,82,669/- made on account of bogus purchases, without appreciating the facts that the Sh. Anil Kumar Singhal, an entry operator in his statement, had accepted that he has provided accommodation entry to M/s NKG Infrastructure through his paper entities, which ate managed and controlled by him and utilized to raise bogus purchase bills.

2. That tile Ld. CIT(A) erred in the setting off the sales of tile assessee company made to M/s Barsana Fabtex Pvt Ltd & M/s Salasar Fabtex Pvt. Ltd. aggregating to Rs.63,85,69,808/- with the bogus purchases made by the assessee company from M/s Multiblizz Traders Pvt. Ltd. of Rs.63,64,06,890/-.

3. That the Ld. CIT(A) erred in tile setting off tile sales of tile assessee company made to M/s Barsana Fabtex Pvt Ltd & M/s Salasar Fabtex Pvt. Ltd. aggregating to Rs.65,00,45,739/- with the bogus purchases made by the assessee company from M/s Glriraj Global Ltd. of Rs.64,78,22,696/-.

4. That the order of tile CIT(A) is perverse, erroneous and is not tenable on facts and in law.” “ASSESSEE’S APPEAL (ITA No.4749/Del/2024)

1. That on the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) (hereinafter referred as "CIT(A)" is bad both in the eyes of law and on facts.

2. That on the facts and in the circl1mstances of the case, the learned CIT(A) erred in law in arbitrarily and mechanically holding the reopening of assessment proceedings u/s 147 of the Act as valid which is barred by limitation as per the provisions of Section 149 of the Income Tax Act, 1961.

3. That on the facts and in the circumstances of the case, the learned CIT(A) erred in law in arbitrarily and mechanically holding the reopening of assessment proceedings u/s 147 of the Act as valid which is merely on the basis of change of opinion on the same subject matter which have already been assessed u/s 153A r.w.s. 143(3), is in violation of law settled by the Hon'ble Supreme court in the case of Commissioner of Income Tax v Kelvinator India Limited (2010) 320 ITR 561 (SC).

3. That on the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in holding the reopening of assessment proceedings u/s 147 of the Act as valid by ignoring the fact the AO reopened the assessment without having any cogent, definite material on record for the alleged accommodation entries in form of bogus purchases and without conducting independent enquiry regarding escapement of income.

4. That on the facts and circumstances of the case, the assessment order passed u/s 147 of the Act is bad in law without providing the verbatim copy of the information, documents, material received from Insight portal and report of DDIT(inv)-1, Ghaziabad, heavily relied upon by him, to the appellant even though specific request was made, which is in violation of principle of natural justice.

5. That on the facts and circumstances of the case, the assessment order passed u/s 147 of the Act is bad in law without providing the copy of statement of Shri Anil Kumar Singhal heavily relied upon by the assessing officer for making addition and opportunity to cross - examine the said person which is violation of principle of natural justice.

6. That on the facts and circumstances of the case, the learned CIT (A) erred in ignoring the settled law that merely because the parties from whom alleged purchases have been made did not respond to notice issued by assessing officer u/s 133(6), it could not be said that said transaction was ingenuine.

7. That on the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming ad-hoc estimated addition of Rs.4,02,68,480/- u/s 69C of the Act by presuming that commission @ 3% was to be paid on alleged entries of purchase and sale without bringing any cogent or substantive material on record in support of his contention that too without affording an opportunity of being heard to the appellant.”

6. At the time of hearing, ld. AR of the assessee raised the issue of jurisdiction and submitted as under :- “3. The sole basis of making addition was the statement of Mr. Anil Kumar Singhal. The AO has not provided the appellant an opportunity of cross examination of Mr. Anil Kumar Singhal even though specific request was made by the appellant during the course of assessment proceedings and further no other document/evidences brought on record by the AO which corroborate sue addition apart from statement of Mr. Anil Kumar Singhal. It is well settled la that not allowing the assessee to cross-examine the witnesses by the Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. We are relying upon the following case laws:

 Andaman Timber Industries v Commissioner of Central Excise, Kolkata II [2015] 62 taxmann.com 3, Supreme Court  Commissioner of Income tax v Pradeep Kumar Gupta [2008] 303 ITR 195 (High Court - Delhi)  Commissioner of Income tax v Rajesh Kumar [2008] 306 ITR 27 (HC Delhi) 4. The case of the appellant has been already assessed under section 153A r.w.s. 143(3) of the Income tax Act, 1961 and there is no failure on the part of the appellant to furnished fully and truly all the material fact necessary for its assessment and therefore reopening was merely on the basis of change of opinion on the same subject matter in violation of law settled by the Hon'ble Supreme Court in the case of Commissioner of Income tax v Kelvinator India Limited (2010) 320 ITR 561 (SC), Income Tax Officer Ward No. 16(2) v M/s Tech Span India Private Ltd. & Anr. (2018) Civil Appeal No. 2732 of 2007 and ACIT v AIM Fincon (P.) Ltd [2024] 166 taxmann.com 681 (Supreme Court) 5. The AO has reopened the assessment without having any cogent, definite material on record for the alleged accommodation entries in the form of bogus purchases without conducting independent enquiry regarding escapement of income.

7. Further with regard to merits of the case, he relied on the findings of the ld. CIT(A) and submitted that the issue was already reached finality and the ITAT has already decided the issue by sustaining the findings of the ld. CIT (A) in AY 2014-15.

9. Considered the rival submissions and material placed on record. Before us, assessee has raised the issue of jurisdiction with the submission that the Assessing Officer has reopened the assessment solely on the basis of statement of Anil Kumar Singhal. We observed that the assessee has asked for opportunity of cross-examination. However it was not extended to the assessee, even though specific request was made. It is fact on record that addition was made in the hands of the assessee purely on the basis of the statement of Anil Kumar Singhal. It is well settled law that not providing opportunity of cross-examination is against the principles of natural justice and the addition was made purely on the basis of statement of third party and making addition in the hands of the assessee without there being any opportunity to the effected person. We observed that Hon’ble Supreme Court in the case of Andaman Timber Industries vs. CIT (supra) has dealt with this issue and held as under :- “6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross- examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guesswork as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.”

10. Further we observed that the case of the assessee was already assessed u/s 153A read with section 143(3) of the Act and it is fact on record that the case was reopened beyond four years. Therefore, the proviso to section 147 comes into play and for reopening of the assessment, the Assessing Officer has to brought on record the failure on the part of the assessee to furnish fully and truly all the material facts necessary for its assessment. In the given case, the assessment was already completed u/s 153A read with section 143(3) of the Act. Even though the Assessing Officer has come across some new material which was also basis on a statement recorded from the third party, as per the provisions of the Act, the Assessing Officer has to record the reasons of failure on the part of the assessee particularly when the assessment involved is beyond four years.

In this case, the assessment was reopened beyond 7 years. We observed that Hon’ble Supreme Court in the case of ITO, Ward No.16(2) vs. M/s. TechSpan India Pvt. Ltd. (supra) has held as under :- “8. To appreciate the present controversy between the parties, it would be appropriate to refer to Sections 147and 148 of the IT Act. For ready reference, relevant portion of Sections 147 and 148 of the Act are reproduced below:— “147. Income escaping assessment:— If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of relevant assessment year, unless any 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 under section139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year: ******" "148. Issue of notice where income has escaped assessment.-(1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139: ************"

(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.” The language of Section 147 makes it clear that the assessing officer certainly has the power to re-assess any income which escaped assessment for any assessment year subject to the provisions of Sections 148 to 153.However, the use of this power is conditional upon the fact that the assessing officer has some reason to believe that the income has escaped assessment. 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 same 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 provision was incorporated in the scheme of the IT Act so as to empower the Assessing Authorities to re-assess any income on the ground which was not brought on record during the original proceedings and escaped his knowledge; and the said fact would have material bearing on the outcome of the relevant assessment order.

11. It is well settled and held by this court in a catena of judgments and it would be sufficient to refer CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 (SC) wherein this Court has held as under:— '5….where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe"….. Section 147 would give arbitrary powers to the Assessing Officer to re- open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open.

6. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place.

13. The fact in controversy in this case is with regard to the deduction under Section 10A of the IT Act which was allegedly allowed in excess. The show cause notice dated 10.02.2005 reflects the ground for re-assessment in the present case, that is, the deduction allowed in excess under Section 10A and, therefore, the income has escaped assessment to the tune of Rs. 57,36,811. In the order in question dated 17.08.2005, the reason purportedly given for rejecting the objections was that the assessee was not maintaining any separate books of accounts for the two categories, i.e., software development and human resource development, on which it has declared income separately. However, a bare perusal of notice dated 09.03.2004 which was issued in the original assessment proceedings under Section 143 makes it clear that the point on which the re-assessment proceedings were initiated, was well considered in the original proceedings. In fact, the very basis of issuing the show cause notice dated 09.03.2004 was that the assessee was not maintaining any separate books of account for the said two categories and the details filed do not reveal proportional allocation of common expenses be made to these categories. Even the said show cause notice suggested how proportional allocation should be done. All these things leads to an unavoidable conclusion that the question as to how and to what extent deduction should be allowed under Section 10A of the IT Act was well considered in the original assessment proceedings itself. Hence, initiation of the re-assessment proceedings under Section 147 by issuing a notice under Section 148 merely because of the fact that now the Assessing Officer is of the view that the deduction under Section 10A was allowed in excess, was based on nothing but a change of opinion on the same facts and circumstances which were already in his knowledge even during the original assessment proceedings.”