Loading judgment…
Facts
The Revenue appealed against the order of the CIT(A) who quashed the reassessment proceedings initiated by the AO. The reassessment was based on information from an Investigation Wing survey, but the AO allegedly relied on "borrowed satisfaction" without independent application of mind. The statements and documents relied upon were also alleged to be illegible or not relevant to the assessment year.
Held
The Tribunal held that the reassessment proceedings were rightly quashed by the CIT(A) because the AO's basis for reopening was borrowed satisfaction and insufficient information. The Tribunal found no evidence that the AO independently applied his mind to the material before issuing the notice under Section 148.
Key Issues
Whether the reassessment proceedings were validly initiated based on borrowed satisfaction and illegible/irrelevant documents? Whether the AO independently applied his mind to the material before issuing the notice under Section 148?
Sections Cited
143(3), 147, 148, 133A, 145(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI M. BALAGANESH & SHRI YOGESH KUMAR U.S.
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2007-08, arises out of the order of the Commissioner of Income Tax (Appeals)-3, New Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. 267/14-15 dated 03.10.2016 against the order of assessment passed u/s 143(3)/ 147of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 26.03.2013 by the Assessing Officer, DCIT, Circle-17(1), New Delhi (hereinafter referred to as ‘ld. AO’).
The revenue has raised the following grounds of appeal:-
“1. "On the facts and in the circumstances of the case and law, the Ld. CIT(A) has erred in quashing the re-assessment made by the AO u/s 147/143(3) when the AO has sufficient material on record to prove that the assessee has concealed particulars of its income." 2. "The appellant craves, leave or reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal."
We have heard the rival submissions and perused the material available on record. The assessee pleaded that reassessment proceedings u/s 147 of the Act stood initiated without there being any documentary evidence on the record which is found/ impounded during the survey conducted on 06.10.2010 u/s 133A of the Act. It was submitted that statement relied upon by the ld AO of certain parties which are incorporated in the assessment order, the copy of statement which was provided to the assessee was illegible and not clear as to who had recorded the statement, place of recording the statement, name of the persons whose statement was recorded, proceeding under which the statement was recorded and date and time of the statement. None of the crucial information was legible in the copy of the statement provided to the assessee by the ld AO. The ld AO however framed the assessment u/s 143(3) read with section 147 of the Act on 26.03.2013 determining the total income of the assessee at Rs. 6,65,95,770/- as against the returned income of Rs. 16,03,890/- after making the following additions:- a. Addition on account of share application/ Rs 3,82,49,000/- share premium- b. Addition on account of claim Rs. 13,14,250/- C. Addition on account of sundry creditors Rs. 4,28,628/- d. Addition on account of net profit Rs 50,00,000/- 4. The assessee preferred an appeal before the ld CIT(A) who deleted the addition on merits and also quashed the reassessment proceedings.
In the instant case, the notice u/s 148 of the Act was issued on 19.03.2012. Certain statements were recorded from alleged entry operators by the Investigation Wing of the Income Tax Department which were forwarded to the ld AO and which alone triggered the initiation of reassessment proceedings of the assessee vide issuance of notice u/s 148 of the Act. Hence, this is a clear case of borrowed satisfaction on the part of the ld AO. The statements recorded by the Investigation Wing were not forwarded to the assessee either by the Investigation Wing or by the ld AO in the readable format. It is pertinent to note that the certain impounded documents at the time of survey comprising blank share transfer forms, undated delivery notes, blank receipts of investing companies and power of attorney. It is not relatable to the year under consideration at all which facts has been duly appreciated by the ld CIT(A). Hence, there is no question of making any addition on account of share capital or share premium during the year under consideration. In our considered opinion, the ld CIT(A) had rightly deleted the same.
Further, the ld AO had sought to reject the books of account of the assessee u/s 145(3) and proceeded to make several additions based on the very same books of account in the form of commission and sundry creditors. Having resorted to reject the books and resorting to estimating the profits from business, no separate addition could be made on account of sundry creditors as they are also connected with the business. Hence, the same has been rightly deleted by the ld CIT(A).
We find that the profit estimation of Rs. 50 lakhs was made by the ld AO based on the gross profit rate of 20% as against the declared gross profit rate of 11.3 % by the assessee. The ld AO insisted for furnishing quarterly GP and NP rate which were not furnished by the assessee. Accordingly, the estimated profit rate was made by the ld AO. Even if the books were rejected u/s 145(3) of the Act by pointing out certain defects, the ld AO is duty bound to bring on record comparable instances depending the nature of business carried out by the assessee and resort to estimation of profit percentage. There is no question for making adhoc addition of Rs. 50 lacs directly. We hold that this is not a fit case for rejection of book results u/s 145(3) of the Act. Hence, the estimation profit addition of Rs. 50 lacs has been rightly deleted by the ld CIT(A).
Before, the ld CIT(A), the ld AO vide letter dated 27.06.2016 gave the list of 4 parties seized documents which were impounded at the time of survey. They are as under:- a. Brightview Buildcon Pvt. Ltd b. Trinetra international ltd c. Kushal Infratech Pvt. Ltd c. Sachet Media Pvt. Ltd
Accordingly, the ld AO confirmed that this is the only information which he had at the time of recording the reasons for reopening the assessment and during the course of assessment proceedings. The assessee pleaded before the ld CIT(A) that these four parties have no transaction in any manner whatsoever with the assessee and they are not investors in the assessee company. Hence, there is no live link for formation of belief on the part of the ld AO that income of the assessee had escaped assessment. Apart from this, various objections were raised by the assessee challenging the validity of reopening of assessment before the ld CIT(A). We find that the ld CIT(A) has quashed the entire reassessment by observing as under:-
2.7 In the instant case, the Assessing Officer while recording the reasons wrote that during the course of the survey by the ADIT, Investigation, blank share transfer forms, undated delivery notes, blank receipts of the investing companies and power of attorney were found and impounded. The assessee fails to prove the genuineness of the transaction and the identity of the applicants The companies who invested in the share capital have earlier been held to be entry operators and the creditworthiness of such companies could not be established 1 find that the reasons recorded by the Assessing Officer are mere information received from the ADIT (Investigation). No documentary evidence was found and impounded during the survey related to the year under consideration. The statement scanned and incorporated in the assessment order is illegible and the Assessing Officer could not locate the legible copy despite repeated directions. There is no evidence on the record to show that any incriminating documentary evidence was impounded during the survey for the year under consideration to hold that the share subscription is received from the entry operators. 2.8. From the above, it is clear that the Assessing Officer referred to the information received from the ADIT(Investigation) and other directions as "reasons" on the basis of which he proceeded to issue notice under section 148 of the Act. These cannot be the reasons for proceeding under section 147/148 of the Act. There is no evidence on the record to suggest that the Assessing Officer applied his mind to the information and independently arrived at the belief that on the basis of the material which he had before him income had escaped the assessment. Resultantly, the initiation of proceedings under section 147 and issuance of notice under section 148 of the Act are hereby quashed.
3. As the proceedings u/s 147/148 of the Act have been quashed. There is no need to adjudicate the other grounds raised regarding the merits of the case.
We find that the ld CIT(A) had quashed the reassessment proceedings per se apart from deleting the entire addition on merits. The revenue had challenged only the quashing the reassessment proceedings and had not raised any ground before us challenging the deletion of addition of merits by the ld CIT(A). The very basis of reopening is borrowed satisfaction and insufficient and incorrect information. Hence, we hold that the ld CIT(A) had rightly quashed the reassessment proceedings in the instant case apart from deleting the addition on merits. Accordingly, grounds raised by the revenue are dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 15/05/2025.