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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI R. K. PANDA & SHRI N. K. CHOUDHRY
O R D E R PER N.K. CHOUDHRY, J. M.:
This appeal has been preferred by the Assessee against the order dated 09.11.2018 impugned herein passed by the ld. Commissioner of Income Tax (Appeals)–9, New Delhi (hereinafter called to as „ld. Commissioner‟) u/s250(6)of the Income Tax Act, 1961 (in short „the Act‟) for the assessment year 2010-11, whereby the assessment order dated 30-11-2017 passed u/s section 147 of the Act by the AO, was upheld.
Brief facts of the case are that on receiving information from the office of the ADIT(Investigation), Faridabad to the effect that M/s. Neelkanth Steel, Faridabad has made bogus sales to the tune of Rs. 25 lakhs, which escaped to tax in the hands of the Assessee, reasons qua concealment of income were recorded by the AO and thecase of the Assessee was reopened by issuing notice dated 30.03.2017 u/s 148 of the Act which remained un-complied.
2.1 Thereafter, a notice u/s 142(1)/129 was also issued on 04.07.2017 along with reasons for selection of the case of the Assessee, in response to which, the Assessee vide letter dated 17.07.2017 submitted a copy of ITR originally filed u/s 139(1) of the Act wherein the Assessee had declared the income of Rs. 1,01,35,990/- and requested to treat the same as filed in response to the notice dated 30.03.2017 u/s 148 of the Act. 2.2 The Assesssing officer finally passed the assessment order dated30-11-2017 and added the amount ofRs. 25 lakhs in the total income of the Assessee as per section 69/ 69C of the Act, by observing that during the year under consideration the Assessee had taken accommodation entry of Rs. 25 lakhs from M/s. Neel Kanth Steel, Faridabad and inflated expenses through bogus billings with the intention to reduce its taxable income or made earning of an equal sum by way of routing of money. The genuineness of the transaction were tried to verify from the various sources but the same could not be verified at all, as the Assessee had failed to produce documentary evidence which may substantiate that the transactions reported are genuine and not a bogus entry.
3 Against the said addition and reopening of the case, the Assessee filed first appeal before the ld. Commissioner and raised the issue related to the merits of the case and reopening of the case u/s 147/148 of the Act as well, mainly on the ground that the AO acted only on thebasis of information received from ADIT(Investigation), Faridabad and did not apply his mind while recording the reasons u/s 147 of the Act and initiation of the proceedings u/s 147/148 of the Act, which goes to the root of the case and dent the re-opening itself. 3.1 The Assessee also relied upon various judgments of the jurisdictional High Court and the Tribunal in support of its case such as in the cases of PCIT Vs. RMG Polyvinyl (I) Ltd (396 ITR 5)and Pr. CIT Vs. Meenakshi Overseas Pvt. Ltd (395 ITR 677), etc and raised the contention that the reopening was done onthe basis ofborrowed satisfaction without applying independent mind and even otherwisethe reopening was not based upon any material except the information received from the office of the ADCIT, Investigation and therefore the same is invalid and void. 3.2 Though the Ld. Commissioner considered the contentions of the Assessee, however at the end, upheldthe reopening of proceedings u/s 147/148 of the Act on the basis of information received from ADIT (Investigation), Faridabad and while relying upon the judgment passed by the Hon‟ble Punjab and Haryana High Court in the case of Rakesh Gupta Vs. CIT, Panchkula (2018) 405 ITR 213 (P&H) and Hon‟ble Kolkata High Court in the case of Rampuria Industries &Investment Ltd Vs. DCIT, Circle- 7(2), Kol(2017) 299 CTR 532 (Kolkata) etc.
The Assessee being aggrieved by the impugned order,preferred the instant appeal which is under consideration before us.
Heard the parties and perused the material available on record. The Assessee has challenged the action of the Ld. Commissioner in affirmation of reopening proceedings u/s 147/148 of the Act and sustenance of the Addition on merits as well,hence we deem it appropriate to decide the validity of re-opening first.
5.1 Let us peruse the relevant provisions of law: "147. If the AO has reason to believe that any income chargeable to tax has escaped assessment for any A.Y., 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 proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the a.y. concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year). Provided that where an assessment under subsection (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 the 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 section 139 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. Explanation 1.- Production before the assessing officer of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2- For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment namely:- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income tax. (b) Where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the assessing officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return. (c) Where an assessment has been made, but- (i) income chargeable to tax has been under assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this act; or (iv) excessive loss or depreciation allowance or any other allowance under this act has been computed." 5.2 The provisions of section 147are very much clear. Section 147 authorizes the Assessing Officer to assess or re-assess the income chargeable to tax if he has reason to believe that the income for any assessment order has escaped assessment and has duly recorded the reasons, however it well settled that the reasons to believe must be bona fide and based upon some relevant material, on which a reasonable person could have form the requisite belief.
5.3 Let us peruse the reasons recorded which are as under:
Annexure-A For the belief that income has escaped assessment in the case of M/s. Technicom Holding Pvt. Ltd (AACCT7296C, Assessment Year 2010-11.
1st part of In this case, the information has been received by this the Reasons office from Asstt. Director of Income Tax (Inv)- Faridabad vide (emphasis F. No.ADIT/(lnv)/FBD/2016-17/5228 dated 14.03.2017. ours ) As per the information provided it is seen that M/s. Neel Kanth Steel, FCA 2402, Gali No.8, 25 feet Road, SGM
Nagar, Faridabad has made bogus sales to the assessee M/s. Technicom Holding Pvt Ltd. further the Asstt. Director of Income Tax (Inv)-II, Faridabad has also made physical enquiry and other investigation the Relevant observation was found and the same as under: a. ShriMunish Kumar S/o, ShriGovindLal is the proprietor of M/s. Neel Kanth Steel having PAN ARFPK7578K. b. The bank account statement of account no, 102505000755 of M/s, Neel Kanth Steel shows that the account has been credited through transfer mainly from the bank account of M/s. Technicom Holdings Pvt Ltd. c. Total deposits in the bank account no, 10250500755 made in the F.Y.2009-10 are Rs.41.24,189/-. Most of the withdrawals have been malde through cash paid self. Total cash withdrawal during the period were Rs.4046,0000/-.
During the investigation the Asstt. Director of Income Tax (Inv)-II, Faridabad has also observed that the following:- a. M/s. Neel Kanth Steel, FCA 2402, Gali No.8, 25 feet Road, SGM Nagar, Faridabad has been found to be non- existant and non traceable. b. ShriMunish Kumar Prop. Of M/s. Neel Kanth Steel has not filed his income tax return in any finance year fill date. c. ShriMunish Kumar Prop. Of M/s. Neel Kanth Steel has not filled his VAT return in any financial year till date in spite of having substantial sales and purchase transaction. d. ShriMunish Kumar Prop. Of M/s. Neel Kanth Steel is not registered with VAT department. e. The purchase and sales by the assessee, as reflecting through banking entries are almost same. f. The funds in the bank account are received through cheques and followed by immediate withdrawal by way of cash. g. The debit entries arc immediately followed by credit entries of same amount. h. Pattern of transaction in his bank account is very peculiar i.e. all transactions are made in round figures. i. The account was opened on 13.06.2009 and has been closed on 01.10.2009 i.e. in spite of substantial and frequent transaction of approx 40 lakhs in few months the account gets closed suddenly. j. The statement of purchaser Shri Sunil Sharma, Director of M/s. Technicon Holdings Pvt Ltd. was recorded on oath and has stated that he does not know ShriMunish Kumar Prop, of M/s. Neel Kanth Steel though the person made purchases from him. k. The purchaser have failed to produce the evidences in support of purchases like transport, cartage, loading and unloading, inward entries etc.
Further as per the bank account statement of M/s. Neel Kanth Steel the following transaction were made with M/s. Technicon Holdings Pvt Ltd.:
Date of SINo. Transactions Amount 1 28.08.2009 5,00,000/- 2 28,08.2009 5,00,000/- 3 05.09.2009 10,00,000/- 4 25.0.9.2009 5,00,0007- Total 25,00,000/-
2nd Part of After analyzing of information/report the Reasons forwarded to this office, it is clear the above (emphasis transactions entered between the above mentioned ours ) entities and the assessee/beneficiary are bogus entries in nature. Therefore, mentioned transaction/ entries needs to be investigated to protect the interest of the Revenue.
In view of the above facts, I have therefore, reason to believe that income has escaped assessment by person of omission or failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment.
3rdpart of In order to verify the said transaction, this the Reasons office may kindly be granted approval in' accordance (emphasis with the provisions of Section 151(2) of the IT Act, for ours ) issue of notice u/s 148 of the Act.
ACIT, C-25(a), New Delhi 5.4 Admittedly the first part of the Reasons recorded is only information forwarded by the DDIT (Investigation) and the second part of the so-called reasons is mere reason and third part is request to the superior authorityfor directions for issuance of notice u/s 148 of the Act.
5.5 On the basis of reasons stated above, issue emerge as to whether reopening of case can be made u/s 147/148 of the Act, on the basis of information received from the investigation agency, without being corroborated and verifying independently by the AO.
5.6 The Hon‟ble Jurisdictional High Court in the case of PCIT Vs. RMG (396 ITR 5) dealt with the identical issue and held as under:-
"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”.
5.7 Further in the case of CIT Vs. SPL‟s Siddhartha Ltd 345 ITR 223 also dealt with the identical issue and held as under:-
“In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction’. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment. For the aforementioned reasons, the Court is satisfied that in the facts and circumstances of the case, no error has been committed by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law”.
5.8 The jurisdictional High Courtagain in the case of Pr. CIT vs. Meenakshi Overseas Pvt. Ltd, 395 ITR 677 dealt identical with the issue has held as under:
“In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment. For the aforementioned reasons, the Court is satisfied that in the facts and circumstances of the case, no error has been committed by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law.”
5.8 From the judgments referred above, it is clear that demonstration of link between the tangible material and the formation of the reasons to believe that income had escaped assessment is necessary for reopening the case u/s 147/ 148 of the Act and the information received from the Investigation Wing cannot be said to be a tangible material per se without further inquiry being undertaken by the AO. The conclusion of the AO, based on the investigation report indeed is a borrowed satisfaction. The Hon‟ble High Court also held that it is established principle of law that if a particular authority has been designated to record his/her satisfaction on a particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be “independent” and not “borrowed” or „dictated‟ satisfaction 5.9 Admittedlyin this case, the AO while recording reasons for selection of the case, neither made any enquiry qua the information dated 14.03.2017 of the ADIT, Investigation, Faridabad nor made any effort to find out the veracity and authenticity of information and any corroborative evidence/material thereto, but only acted on the information while forming belief qua escapement of the income and initiation of proceedings u/s 147/148 of the Act, without connecting tangible material and the formation of the reasons to believe for escapement of income.
5.10 The reasons recorded in the instant case are vague and based on un-substantive reasoning, uncorroborated material and lack of evidence and hence as per decisions of the jurisdictional High Court referred above, the reasons referred above tantamount to be basedon borrowed satisfaction and according to our considered view, does not sound valid reasons in the eyes of law, for reopening of the case.
5.11 On the aforesaid discussion, we are of the considered view that the Ld. CIT(A) without appreciating the facts of the case, explanation submitted and evidences places on record judiciously , was absolutely unjustified in upholding the reopening of the assessment u/s 147 of the Act. Consequently the order under challenge whereby the addition made by the AO has been sustained by the Ld. CIT(A) along with the re-assessment order stands quashed .
5.12 As we have quashed the Re-Assessment order itself, hence restraining ourselves to decide the case on merit, as the same would be futile exercise.
6 In the result, the Appeal filed by the Assessee is allowed.