COMMISSIONER OF INCOME TAX – II vs. CO. LTD
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2015
VIBHU BAKHRU, J
This appeal under Section 260A of the Income Tax Act, 1961 (hereafter the ‘Act’) has been preferred by the Revenue impugning an order dated 9th November, 2012 passed by the Income Tax Appellate Tribunal (hereafter the ‘Tribunal’) in ITA No.1202/Del/2011. The said appeal (ITA 2015:DHC:7971-DB
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No.1202/Del/2011) was preferred by the Revenue to impugn an order dated 23rd December, 2010 passed by the Commissioner of Income Tax (Appeals) [hereafter the ‘CIT(A)] allowing the appeal preferred by the Assessee against an assessment order dated 31st December, 2008 passed by the Assessing Officer (hereafter ‘AO’) in respect of Assessment Year 2001-02 pursuant to reopening of the assessment under Section 147 of the Act.
The controversy involved in the present appeal relates to the action of the AO in reopening the assessment in respect of transactions that had been examined and verified by the AO during the initial assessment proceedings which culminated in the assessment order dated 31st December, 2003. The assessment was re-opened based on information received by the AO from the Investigation Wing that the Assessee had obtained accommodation entries from certain entry operators during the relevant period. The Assessee’s challenge to the initiation of re-assessment proceedings as well as the addition made to the Assessee's taxable income pursuant thereto, was sustained by the CIT(A) as well as the Tribunal.
This appeal was admitted on 6th January, 2014 and the following questions were framed for consideration:- 2015:DHC:7971-DB
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“(a) Is the impugned decision of the ITAT justified and correct inasmuch as it holds that the reopening of assessment of the petitioner was not in accordance with law; and (b) Whether the ITAT fell into error in not upholding the Revenue’s contentions that the other accounts have to be added on merits under Section 68 of the Income Tax Act.”
Briefly stated, the relevant facts necessary to consider the controversy involved in the present appeal are as under:-
1 The Assessee filed its return of income for the Assessment Year (hereafter the ‘AY’) 2001-02 declaring an income of `27,83,483/- under Section 115JB of the Act. The said return was picked up for scrutiny and the AO issued notice under 143(2) of the Act on 11th October, 2002. Thereafter, the Assessee was issued a questionnaire on 7th November, 2002. Subsequently, another questionnaire was issued to the Assessee on 21st March, 2003. The return filed by the Assessee was discussed and the Assessee was also called upon to file details of the unsecured loans. In response to the queries, the Assessee sent a letter dated 12th December, 2003 enclosing therewith the details of unsecured loans alongwith copies of confirmation, copies of income tax returns and copies of ledger accounts pertaining to the unsecured loans. This also included details pertaining to 2015:DHC:7971-DB
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Richie Rich Overseas Pvt. Ltd. (hereafter ‘Richie Rich’). During the course of the assessment proceedings, the Assessee was also called upon to explain its agreement with Mahan Enterprises Ltd. In response thereto, the Assessee filed the Agreement entered into with Mahan Enterprises. The Assessee explained that it had entered into an arrangement with Mahan Enterprises Ltd., whereby, the said company had agreed to finance the cost and expenses required to be incurred by the Assessee in relation to an assignment from Gujarat Electricity Board. The issue as to sharing of revenue between the Assessee and Mahan Enterprises Ltd. was also debated before the AO.
2 During the course of the proceedings a letter dated 18th December, 2003 was filed by Mahan Enterprises Ltd. with the AO which, inter alia, confirmed that certain investments had been arranged by Mahan Enterprises Ltd. and out of the loans so arranged the Assessee had, subsequently, returned back loans to the extent of `1.07 crores. The said amount also included loan received from Richie Rich, which is sought to be taxed as unexplained credit in the re-assessment proceedings.
3 The AO received information from the Investigation Wing of the Income Tax Department that the Assessee had obtained accommodation 2015:DHC:7971-DB
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entries from certain entry operators during the financial year 2000-01. This included a sum of `55,15,400/- from Richie Rich and `2 Lacs from Adam Impex Pvt. Ltd. On receiving this information, the AO recorded as a reason to believe that the income of the Assessee for AY 2001-02 had escaped assessment and, accordingly, issued a notice dated 31st March, 2008 under Section 148 of the Act. Thereafter, the AO issued a notice dated 7th November, 2008 under Section 143(2) of the Act. In response to the aforesaid notice, the Assessee requested the AO to treat the return as originally filed as a return in response to the notice under Section 148 of the Act. The Assessee also sought the reasons for the re-opening of the assessment.
4 Thereafter, the AO proceeded with the reassessment proceedings and called upon the Assessee to furnish details in respect of certain transactions reflected in its bank account. Subsequently, the AO also provided the Assessee with the reasons for initiating proceedings under Section 147/148 of the Act.
5 The Assessee objected to the reopening of the assessment vide a letter dated 12th December, 2008. According to the Assessee, the reasons 2015:DHC:7971-DB
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recorded were wrong; without application of mind; and there was no tangible evidence, which indicated that income of the Assessee had escaped assessment.
6 The Assessee also filed a detailed response enclosing all evidence that was readily available with it to support the genuineness of the entries pertaining to the transaction with Richie Rich. This included the Ledger Accounts of Richie Rich in the books maintained by the Assessee; a bank statement; and confirmation of accounts. Subsequently, before the CIT(A), the Assessee also produced a copy of the income tax return filed by Richie Rich for the AY 2001-02; copy of the balance sheet of Richie Rich for the AY 2001-02; copy of the bank statement of Richie Rich; copy of the ‘company master details’ of Richie Rich with the
