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Income Tax Appellate Tribunal, DELHI BENCHES “A” : DELHI
Before: SHRI R.K. PANDA & SHRI K. NARASIMHA CHARY
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES “A” : DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA.No.8757/DDN/2019 A.Y. 2011-2012 M/s. ANM Fincap (P) The Income Tax Officer, Ltd., Shop No.9, Plot Ward – 1 (1), No.51, Block-C, vs. Room No.380A, Mahendru Enclave, C.R. Building, Near Hans Cinema, Delhi – 110 033 New Delhi – 110 002. PAN AAACA9489Q (Appellant) (Respondent) For Assessee : Shri Suresh Kr. Gupta, CA For Revenue : Shri Rajat Kureen, Sr. DR Date of Hearing : 07.04.2022 Date of Pronouncement : 08.04.2022 ORDER PER R.K. PANDA, A.M.
This appeal filed by the assessee is directed against the order dated 28.10.2019 of the Ld. CIT(A), New Delhi relating to A.Y. 2011-12.
Brief facts of the case are that assessee is a company and filed its return of income on 23.08.2011
2 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. declaring total income of Rs.30,040/-. The return was processed under section 143(1) of the I.T. Act, 1961. Subsequently the A.O. reopened the assessment under section 147 of the I.T. Act, 1961 by recording the following reasons :
3 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 4 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 5 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi.
2.1. Accordingly, notice under section 148 of the I.T. Act, 1961 was issued to the assessee on 31.03.2018.
2.2. In response to the same, the assessee vide letter dated 12.04.2018 requested the A.O. to provide the reasons. The A.O. vide letter dated 22.06.2018 provided the reasons. The assessee thereafter vide letter dated 25.06.2018 objected to the notice issued under section 148 of the I.T. Act, 1961. However, the A.O. vide order dated 03.07.2018 disposed of such objections by passing a speaking order and rejected the objections of the assessee and asked the assessee to comply to the notice issued under section 148 of the Act. In response to notice under section 148 of the Act, the assessee filed the return. During the course of assessment proceedings, the A.O. asked the assessee to file
6 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. the details regarding nature of business and source of income, computation of income, copy of all bank statements and details of directors etc., The assessee filed the requisite details from time to time as called for. The assessee also filed a detailed chart of loans taken during the year under consideration with the name, PAN, address, amount received, amount paid, interest paid, TDS deducted along with confirmations of various parties including that of M/s. Attractive Finlease Ltd.
2.3. However, the A.O. was not satisfied with the arguments advanced by the assessee and made addition of Rs.49,00,005/- being accommodation entry obtained from companies floated by Sh. SK Jain group of companies. He also made addition of Rs.98,000/- being expenses incurred for commission @ 2% on the accommodation entry of Rs.49 lakhs. The A.O. accordingly determined the total income of the assessee at Rs.50,28,095/- as against the returned income of Rs.30,040/-.
Before the Ld. CIT(A), the assessee apart from challenging the addition on merit, challenged the validity of 7 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. the reassessment proceedings. It was submitted that the assessee company has filed its return of income for the A.Y. 2011-12 under section 139(1) of the Act on 23.08.2011 declaring income of Rs.30,039/-. It was submitted that the assessment for A.Y. 2010-11 was completed under section 143(3)/147 of the Act on 01.12.2017 by the ITO, Ward-2(4), New Delhi. Similarly the order was passed under section 143(3) vide order dated 19.12.2016 by the ITO, Ward-2(4) for the A.Y. 2014-15. The assessment for the A.Y. 2007-08 was completed by ITO, Ward-2(4) under section 143(3)/147 of the I.T. Act, 1961 vide order dated 27.03.2015. However, for the impugned assessment year, the reassessment proceedings were initiated by the A.O. i.e., ITO, Ward-1(1), New Delhi by issuing notice dated 31.03.2018 who completed the assessment under section 143(3)/147 of the of the I.T. Act, 1961 vide order dated 13.11.2018 and he had no jurisdiction over the assessee. Accordingly, it was argued that the reassessment proceedings initiated by the A.O. not having jurisdiction over the assessee is bad in law and, therefore, it has to be quashed.
8 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 3.1. The assessee in another plank of his argument argued before the Ld. CIT(A) submitted that the A.O. has reopened the assessment under section 147/148 of the I.T. Act, 1961 without applying his independent mind and merely by relying on the report of the Investigation Wing. Further there is ambiguity in the reasons. It was argued that although the assessee had filed the return of income declaring income of Rs.30,039/-, however, the A.O. in the reasons has mentioned that assessee has filed return declaring loss of Rs.10,22,294/-. Similarly, the A.O. has alleged in the reasons that assessee has taken unsecured loans from M/s. Attractive Axis Private Limited, whereas, in the assessment order the A.O. has made addition on account of share application money received from an entity namely M/s. Attractive Finlease Limited. In view of the above, he submitted that when there is non-application of mind by the A.O. and the sanction granted by the Ld. PCIT under section 151 was in a mechanical manner, therefore, due to all these inherent defects in the reasons recorded, such re-opening is bad in law.
9 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 3.2. So far as the merits of the case is concerned, Learned Counsel for the Assessee argued before the Ld. CIT(A) that assessee has discharged its onus cast on it by filing the requisite details and, therefore, no addition under section 68 of the of the I.T. Act, 1961 can be made.
3.3. However the Ld. CIT(A) was not satisfied with the arguments advanced by the assessee and dismissed the appeal on both the counts i.e., challenging the validity of reassessment proceedings and the addition on merit by observing as under :
“5.3. Decision :
5.3.1. I have carefully considered the assessment order and written submissions filed by the Ld. A.R. The facts of the case as well as submissions made by the appellant have been carefully considered. In these grounds of appeal the appellant has stated that the A.O. has not applied his mind independently for assuming jurisdiction under section 147 of the Act and issuance of notice under section 148 of the Act without application of 10. ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi.
11 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 12 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 13 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 14 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 15 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 16 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 17 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 18 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 19 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 20 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 21 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 22 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi.
4. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds :
1. ´The impugned assessment is invalid and without jurisdiction as the reassessment proceedings has been initiated and completed by the AO who had no jurisdiction over the appellant assessee and therefore such initiation and completion of assessment both are void ab initio and liable to be quashed. (Tax Effect: Rs.15,44,399/-) 2. The Ld. CIT(A) on the facts and circumstances of the case has erred in not accepting the contention of the appellant that impugned assessment order passed u/s 143(3)/147 of the Act is not sustainable in law on the ground that the AO was not entitled to take cognizance 23 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. of the material seized from the third party by invoking provisions of sec 147/148 of the Act ignoring the specific provision u/s 153C of the Act dealing with such material. (Tax Effect: Rs.15,44,399/-) 3. The Ld. CIT(A) has erred both in law and circumstances of the case in upholding the reassessment proceedings initiated u/s 147 of the IT Act ignoring the contention of appellant that the proceedings have been initiated by the AO without application of independent mind on the material, if any, provided by the Inv. Wing of the department and also without providing copy of the reasons as recorded in accordance with the judgment of jurisdictional Delhi High Court in the case of Sabh Infrastructure v. ACIX 398 ITR 198 (Del). (Tax Effect: Rs.15,44,399/-)
The Ld. C1T(A) has erred both in law and in facts of the case in upholding the impugned reassessment proceedings without appreciating the fact that in the absence of proof of satisfaction accorded by the authority u/s 151, the appellant was prevented from 24 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. contesting the same before the authorities below. (Tax Effect: Rs.15,44,399/-)
The Ld CIT(A) has erred both in law and in facts of the case in not appreciating the contention of appellant that when the addition is not made by the AO on the issues on which jurisdiction to make reassessment was assumed, the AO was not entitled to make addition on the other issues coming across in the course of assessment. Reliance is placed on the decision of Ranbaxy Laboratories Ltd. vs. CIT 336 ITR 136(Del) (Tax Effect: Rs.15,44,399/-)
6. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding the addition of Rs.40,00,000/- u/s 68 of the IT Act holding the share capital as unexplained cash credit ignoring the fact that the assessee has discharged its initial onus u/s 68 of the IT Act explaining nature and source of the credits by filing requisite documents proving identity and creditworthiness of the lenders and also to establish 25 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. genuineness of the transaction during assessment proceedings. (Tax Effect: Rs.12,36,000/-) 7. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding action of the AO, in making addition u/s 68 of the IT Act of Rs.40,00,000/- is erroneous as the evidences filed by the appellant in support of cash credit of Rs.40,00,000/- have been rejected by the AO without conducting any enquiry thereon in discharge of onus shifting on the revenue after the initial onus discharged by the appellant. (Tax Effect: Rs.12,36,000/-)
8. The Ld. CIT(A) has erred both in law and circumstances of the cases in reliance on the material to take view adverse to the appellant without confronting the same and therefore action of the AO is in contravention of the principals of natural justice.
The Ld. C1T(A) has erred both in law and circumstances of the cases in upholding the addition of Rs.9,00,055/- u/s 68 of the IT Act holding the unsecured loan as 26 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. unexplained cash credit ignoring the fact that the assessee has not received any unsecured loan during the year under consideration from the entities controlled and managed by Sh Anand Kumar Jain and Sh Naresh Kumar Jain. (Tax Effect: Rs.2,78,117/-)
The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding action of the assessing officer in making an addition of Rs.98,000/- being 2% of the alleged accommodation entries of Rs.49,00,055/- is arbitrary and without basis and therefore need be quashed. (Tax Effect: Rs.30,282/-)”
5. Learned Counsel for the Assessee strongly challenged the order of the Ld. CIT(A) in confirming the validity of reassessment proceedings and the addition on merit. Learned Counsel for the Assessee reiterated the arguments made before the Ld. CIT(A) and submitted that when the jurisdiction of the officer was vested with the IT0, Ward-2(4) since he has passed the order for the A.Y. 2010- 11, 2014-15 and 2007-2008 under section 143(3)/147 of 27 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. the of the I.T. Act, 1961, therefore, issue of notice and completion of assessment by ITO, Ward-1(1) makes the proceedings a nullity. Even otherwise, he submitted that there are inherent factual mistakes in the reasons recorded. First of all the assessee has filed the return of income declaring total income at Rs.30,040/- which is evident from Para-18 of the assessment order. However, in the reasons recorded the A.O. has mentioned that the assessee filed the return of income declaring loss of Rs.10,22,294/-. Similarly as per the assessment order, the A.O. has made an addition of Rs.40 lakhs from M/s. Attractive Finlease Private Limited as share capital. However, in the reasons recorded, it showed that assessee has taken unsecured loan of Rs.40 lakhs from M/s. Attractive Axis Private Limited. Therefore, there is also a contradiction between the reasons recorded and the assessment made. Not only this, the Approving Authority i.e., PCIT in the instant case has given his approval in a mechanical manner without perusing the record which also makes such reassessment proceedings invalid because such sanction by the Approving Authority 28 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. does not demonstrate due application of mind. Relying on various decisions, he submitted that on all these counts i.e., the reassessment proceedings initiated by the A.O. and upheld by the Ld. CIT(A) are invalid.
5.1. Learned Counsel for the Assessee in his another plank of arguments submitted that when the reassessment proceedings were made on account of entries taken from entry operator M/s. attractive Axis Private Limited in the shape of unsecured loan of Rs.40 lakhs, however, no addition has been made on account of any amount received from M/s. Attractive Axis Private Limited, but, addition has been made on account of M/s. Attractive Finlease Private Limited being share capital at Rs.40 lakhs. Relying on the decision of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories vs., CIT 336 ITR 136 (Del.) and the decision of Hon’ble Bombay High Court in the case of Jet Airways Ltd 331 ITR 236 (Bom.), he submitted that the A.O. has the jurisdiction to reassess the issues other than the issues in respect of which proceedings were initiated, but he is not justified in making the addition when the reasons for the 29 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. initiation of those proceedings ceased to survive. He accordingly submitted that on all these counts the reassessment proceedings initiated by the A.O. and upheld by the Ld. CIT(A) are not in accordance with law and, therefore, has to be quashed.
5.2. So far as the merits of the case is concerned, the Learned Counsel for the Assessee submitted that assessee has filed all the requisite details to discharge the onus cast on it by proving the three ingredients of Section 68 of the of the I.T. Act, 1961 and, therefore, without controverting the various documentary evidences filed before the lower authorities, the addition made by the A.O. and sustained by the Ld. CIT(A) is also not justified.
The Ld. D.R. on the other hand, heavily relied on the order of the A.O. and the Ld. CIT(A). He submitted that the A.O. in the instant case is validly having jurisdiction over the assessee. The Ld. CIT(A) has elaborately discussed the issue and upheld the reassessment proceedings. So far as the difference in the name of the companies from whom the assessee has received accommodation entries is 30 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. concerned, he submitted that because of the similarity of names there might be some typographical error, but, the fact that assessee has received accommodation entry is not in dispute. So far as the merits of the addition is concerned, he submitted that the Ld. CIT(A) has given justifiable reasons while sustaining the addition.
We have considered the rival arguments made by both the sides, perused the orders of the A.O. and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has filed its return of income on 23.08.2011 declaring total income of Rs.30,040/- and such return was processed under section 143(1) of the I.T. Act, 1961, which has been recorded by the A.O. at para-18 of the order which reads as under :
18. The Assessee Company filed its return of income for the assessment year 2011- 12 on 23.08.2011 declaring income of Rs.30,040/-. Thereafter, the return was processed under 143(1) of the I.T. Act. The case for the year under assessment, however 31 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. was not selected for scrutiny under section 143(2) of the Income-tax Act, 1961.
7.1. However a perusal of the reasons recorded shows that the A.O. in the reasons recorded has mentioned that assessee has filed the return of income for the A.Y. 2011-12 on 23.08.2011 declaring loss of Rs.10,22,294/-. Thus, there is a factual inaccuracy in the figure of income declared in the return and the income declared in the reasons recorded. Similarly, we find the A.O. in the reasons recorded has mentioned that assessee-company has taken accommodation entries of Rs.40 lakhs from M/s. Attractive Axis Private Limited, whereas in the assessment order the name of the company is M/s. Attractive Finlease Private Limited which is evident from para-9 of the assessment order. Further as per para-6 of the reasons recorded, the A.O. has mentioned that assessee has taken accommodation entries in the form of unsecured loans from the entry providing companies being controlled by Shri SK Jain group of companies. Whereas the addition made is on account of an entry in the shape of share capital. All the 32 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. above prove that there is a complete non-application of mind by the A.O. and the reopening has been made on wrong set of facts and the approval/sanction granted under section 151 of the of the I.T. Act, 1961 is in a very mechanical manner and without application of mind.
7.2. We find the Hon’ble Delhi High Court in the case of RMG Polyvinyl India Ltd [2017] 396 ITR 5 (Del.) while quashing the re-assessment proceedings on account of wrong facts has observed as under :
“10. In this context the following observations of this Court in CIT v. Suren International [2013] 57 ITR 24/[2014] 225 Taxman 88/[2013] 35 taxmann.com 398 (Delhi) are relevant (page-33) :
. . . . . In the first instance, we do not find the reasons as recorded by the Assessing Officer to be reasons in law, at all. A bare perusal of the table of alleged accommodation entries included in the reasons as recorded, discloses that the same entries have been repeated six times. This is 33 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. clearly indicative of the callous manner in which the reasons for initiating reassessment proceedings are recorded and we are unable to countenance that any belief based on such statements can ever be arrived at. The reasons have been recorded without any application of mind and thus no belief that income has escaped assessment can be stated to have been formed based on such reasons as recorded.
There can be no manner of doubt that in the instant there was a failure of application of mind by the AO to the facts. In fact he proceeded on two wrong premises - one regarding alleged non-filing of the return and the other regarding the extent of the so-called accommodation entries.
Recently, in its decision dated 26th May, 2017 in Pr. CIT v. Meenakshi Overseas [2017] 82 taxmann.com 300 (Delhi), this Court discussed the legal position regarding reopening of assessments where the return filed at the initial stage 34 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. was processed under Section 143(1) of the Act and not under Section 143(3) of the Act. The reasons for the reopening of the assessment in that case were more or less similar to the reasons in the present case, viz., information was received from the Investigation Wing regarding accommodation entries provided SB by a 'known' accommodation entry provider. There, on facts, the Court came to the conclusion that the reasons were, in fact, in the form of conclusions "one after the other" and that the satisfaction arrived at by the AO was a "borrowed satisfaction" and at best "a reproduction of the conclusion in the investigation report."
As in the above case, even in the present case, the Court is unable to discern the link between the tangible material and the formation of the reasons to believe that income had escaped assessment. In the present case too, the information received from the Investigation Wing cannot be said to be tangible material per se without a further inquiry being undertaken by the AO. In the present case the AO 35 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. deprived himself of that opportunity by proceeding on the erroneous premise that Assessee had not filed a return when in fact it had.
To compound matters further the in the assessment order the AO has, instead of adding a sum of Rs.78 lakh, even going by the reasons for reopening of the assessment, added a sum of Rs.1.13 crore. On what basis such an addition was made has not been explained.
For the aforementioned reasons, the Court is satisfied that no error was committed by the ITAT in holding that reopening of the assessment under Section 147 of the Act was bad in law.
No substantial question of law arises from the impugned order of the ITAT.
The appeal is dismissed. CM No. 1009/2017 18. For the reasons stated in the application, the delay in re-filing is condoned and the application is allowed.”
36 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. 7.3. We further find the Pr.CIT while giving his approval to such reopening has not applied his mind and has given the approval in a mechanical manner. Had he seen the records, at least this glaring mistake would not have occur. We find the Hon’ble Delhi High Court in the case of PCIT vs., N.C Cables Ltd reported in [2017] 391 ITR 11 has observed as under :
“11. Section 151 of the Act clearly stipulates that the Commissioner of Income-tax (Appeals), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression "approved" says nothing. It is not as if the Commissioner of Income-tax (Appeals) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking 37 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. officer. For these reasons, the court is satisfied that the findings by the Income-tax Appellate Tribunal cannot be disturbed.
12. The substantial questions of law framed are answered in favour of the assessee and against the Revenue. The appeal is dismissed.”
7.4. Since, in the instant case, the assessment has been reopened on the basis of wrong facts and the approval has been given by the PCIT in a mechanical manner without due application of mind, therefore, such reopening of the assessment, in our opinion, is not in accordance with law and, therefore, has to be quashed. We, therefore, quash the reassessment proceedings. Since we have quashed the reassessment proceedings on account of wrong set of facts and mechanical approval under section 151 by the PCIT, the grounds challenging the validity of the assessment on account of jurisdiction by the A.O. and other plank of arguments challenging the validity of reassessment proceedings and the addition on merit are not being 38 ITA.No.8757/Del./2019 M/s. ANM Fincap (P) Ltd., Delhi. adjudicated being academic in nature. The grounds raised by the assessee are accordingly allowed.
In the result, appeal of the assessee is allowed.
Order pronounced in the open Court 08.04.2022.