INTERGLOBAL STEELS PVT. LTD.,,NEW DELHI vs. ITO WARD - 1(2), NEW DELHI

PER N.K. BILLAIYA, ACCOUNTANT MEMBER,

This appeal by the assessee is preferred against the

Commissioner of Income Tax [Appeals] - 44, New Delhi dated

14.11.2019 pertaining to Assessment Year 2011-12.

“1. That the order dated 14.11.2019 passed u/s 250(6) of the Income-tax Act, 1961 (hereinafter called “the Act”) by the Learned Commissioner of Income-Tax (Appeals) -44 New Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Learned Income Tax Officer, Ward - 12(3), New Delhi in resorting reassessment proceedings u/s 148 of the Act.

case records carefully perused and with the assistance of the ld.

Counsel, we have considered the documentary evidences brought on

record in the form of Paper Book in light of Rule 18(6) of ITAT Rules.

under:

“The assessee comply filed its ITR on 16.09.2011 for A.Y. 2011-12 declaring income of Rs. 14,95,990/-. The case was processed u/s 143(1) of the Income Tax Act, 1961 at Rs. 14,95,990/-. The company was incorporated on 06/07/1981. The directors of the company are Ms. Anju Gupta, Sh. Ashok Gupta and Ms. Rina Rai. Details of information & material received:

2, As per the information bearing F.No: ITO (Inv.)/U- 1/KOL/Enquiry/ Divya Drishti/36798/2017-18/7089 dated 23.02.2018 received in this office from O/o the JD1T (Inv.), Unit- 1, New Delhi, it is gathered that during the F.Y. 2010-11 relevant to the A.Y. 2011-12, the above mentioned assessee has taken accommodation entry(s) amounting to Rs. 40,00,000/- from M/s Divya Drishti Group who are in -the business of providing accommodation entries to various benenficiaries through cheques/DD/RTGS/NEFT in lieu of cash through* various paper and dummy companies floated and controlled by them.

In course of verification, bank statements of number of accounts have been obtained. Bank account statements of many other companies were verified as mentioned in the dissemination note: -

i) Divya Drishti Merchants Pvt. Ltd. (account No. 000605010065, ICICI, RN Mukherjec Road Branch),

ii) Divya Drishti Traders Pvt Ltd. (account No. 000605010082, 1C1C1, RN Mukherjee Road Branch) &

iii) Kanishk Realestate Pvt. Ltd. (account No. 037205002323, ICICI, Sarai Boar Road Branch).

As per Departmental database of shell companies, Divya 2.1 Drishti Merchants Pvt. Ltd. and Divya Drishli Traders Pvt. Ltd. are shell companies of entry' operator Sri Anuj Agarwal. On perusal, it is, observed that there are RTGS credits and transfers from different a/cs in the bank accounts of Divya Drishti Merchants Pvt. Ltd. and Divya Drishti Traders Pvt. Ltd. and simultaneously the said amount transferred to the a/c of' various other accounts of beneficiaries and intermediaries and in turn the same funds were transferred to various other beneficiaries as given in the cash layers of fund transfers. One of such beneficiary is the assessee company M/s Inter Global Steels Pvt. Ltd. who has taken accommodation entry amounting to Rs.40 lakh from the said non existent paper companies who actually arc not doing any real business and are only paper companies.

Analysis of information collected/received:

From the above, it can be inferred that the out of 3. beneficiary companies took entries from these shell companies which do not have any real business and was operated only to bring their unaccounted money in the books. In this process these beneficiary companies gradually brought their unaccounted cash back in the books without paying any lax.

As per the information received from Investigation wing, it is noticed that the above mentioned assessee has routed its unaccounted income to the tune of Rs. 40,00,000/- and, took bogus accounts entry/entries for non-existent transactions from M/s Divya Drishti group who are in the business of providing accommodation entries to various beneficiaries through cheques/DD/RTGS/NEFT in lieu of cash, through various paper and dummy companies floated and controlled by them. The benefit of accommodation entry has been taken by the assessee to bring the unaccounted money back to its business without paying any tax on the same.

Enquiries made by the AQ and Findings subsequent to information received:

4.. On receipt of information from Investigation Wing, return of income was extracted from the ITD Module. The information received from investigation wing has been verified from the

assessment records with reference to information and return filed by the assessee. It is noticed that the authorized capital of the assessee is Rs 5 crore and issued subscribed and paid up capital is Rs.3,73,14,500/-. Security Premium Account is Rs. 10,65,37,500/-, and creditors as on 31.03.2011 at Rs. 11,67,10,724/-. Investment in equity shares is Rs. 12,38,2 1,000/-. The turnover of the business is Rs.20,49,85,870/ .and other income is Rs. 1 1,02,000/After debiting various expenses, the net income. shown at Rs. 14,95,790/-.

Basis of reason to believe alongwith quantum of income escaped:

Taking into account above noted facts and information, I have reason to believe that income of Rs. 40,00,000/- has escaped assessment for A.Y. 201 1 12 in the case of M/s Inter Cdobal Steels Pvt. Ltd within the meaning of section 147 of the Act. The case of the assessee is required to be re-opened u/s 147 of I.T. Act.

Analysis of legal provisions of section 147/151:

Prior to 1989 section 147 provided for two grounds to 4. reopen concluded assessment:

On the basis of information received by the AO assessment (i) could be reopened. This had to be within four years.

Where facts material for assessment are not disclosed in (ii) the course of assessment, whether within or beyond four years.

6.1 Supervening these two requirements in the alternative, the initial condition is that the Assessing Officer has reason to believe that there is escapement of income. The first requirement regarding information is now dropped by 1989 amendment and therefore for reopening of assessment within a period of 4 years in cases where an original assessment was made u/s 143(3), further requirement is the non-disclosure of material facts necessary for assessment by the assessee. However, in cases where no scrutiny assessment has been made even beyond period of 4 years the only requirement is reason to believe.

6.2 In this case, a return of income was filed for the year under consideration but no scrutiny assessment u/s 143(3) of the Act was made accordingly, in this case, the only requirement to initiate proceedings u/s 147 is reason to believe as recorded above.

6.3 It is pertinent to mention here that in this case the assessee has filed return of income for the year under consideration but no assessment as stipulated u/s 2(40) of the Act was made and the return of income was only processed (not assessed) u/s 143(1) of the Act. In view of the above, provisions of clause (b) of explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.

6.4 In this case, four years but not more than six years have elapsed from the end of the assessment year under consideration and income chargeable to tax which has escaped assessment is more than Rs one lakh, necessary sanction a. issue notice u/s 148 of the Act is being obtained separately from the Pr. CIT Delhi-4, as per amended provisions of section 151 of the Act w.e.f. 01.06.2015

(Narendra Kumar) Income Tax Officer Ward- 12(3), New Delhi

assessment proceedings itself, the assessee made it clear that it has

not received Rs. 40 lakhs from Divya Drishti Group and pointed out that

the credit entry of Rs. 40 lakhs represents the amount received from

sister concern Abhinandan Trafin Pvt Ltd. Perusal of the aforesaid

order states that the Assessing Officer has made the addition of Rs.

7.90 crores as unsecured loans u/s 68 of the Act which is based upon

the copy of ledger account of M/s Abhinandan Trafin Pvt Ltd. It can be

seen that the computation of assessed income is totally devoid of any

addition which was basis for the Assessing Officer to believe that

income has escaped assessment i.e. Rs. 40 lakhs.

from Explanation 3 to section 147 of the Act which was inserted by the

Finance [No. 2] Act, 2009 w.r.e. 01.04.1989 and the same reads as

under:

“For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.”

examined and interpreted by the Hon'ble High Court of Bombay in the

case of CIT Vs. Jet Airways [I] Ltd 331 ITR 236. The relevant part of

the judgment is extracted as under:

“5. The condition precedent to the exercise of the jurisdiction under section 147 is the formation of a reason to believe by the Assessing Officer that any income chargeable to tax has escaped assessment. Upon the formation or a reason to believe, the Assessing Officer, before making the assessment, reassessment or recomputation under section 147 has to serve on the assessee a

notice requiring him to furnish a return of his income. Upon the formation of the reason to believe that income chargeable to tax has escaped assessment, the Assessing Officer is empowered to 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 section 147.

"Some courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment. He is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent.

With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in section147 to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of section 148."

The Punjab and Haryana High Court, in its decision, in Vipan Khanna v. Asstt. CIT [2002] 255 ITR 2201dealt with the question as to whether, after initiating proceedings under section 147 on the ground that the petitioner had claimed depreciation at a higher rate, the Assessing Officer would be justified in launching an inquiry into issues which were not connected with the claim of depreciation. This question was answered in the negative.

A Division Bench of the Kerala High Court held in Travancore Cements Ltd. v. CIT [2008] 305 ITR 1701 ,that upon the issuance of a notice under section 148(2), when proceedings were initiated by the Assessing Officer on issues in respect of which he had formed a reason to believe that income had escaped assessment, it was not open to the Assessing Officer to carry out an assessment, or reassessment in respect of other issues which were totally unconnected with the proceedings that were already initiated and

which came to his knowledge during the course of the proceedings. The Division Bench held that in respect of an issue which is totally unconnected to the basis on which the Assessing Officer formed a reason to believe that income escaped assessment and issued a notice under section 148, it was open to him to issue a fresh notice by following sub-section (2) of section 148 with regard to the escaped income which came to his knowledge during the course of the proceedings. The Kerala High Court held as follows :

". . .The Assessing Officer gets jurisdiction under section 148 to assess or reassess the income which has escaped assessment only after sub-section (2) of section 148 is complied with. The question is whether sub-section (2) of section 148 has to be complied with if any other income chargeable to tax has escaped assessment, or which comes to his knowledge subsequently in the course of the proceedings. In other words, when proceedings are already on in respect of one item in respect of the income for which he had already recorded reasons is it necessary that he should record reasons for assessing or reassessing any of the items which are totally unconnected with the proceedings already initiated. Suppose under two heads income has escaped assessment and those two heads are inter-linked and connected, the proceedings initiated or notice already issued under sub-section (2) of section 148 would be sufficient if the escaped income on the second head comes to the knowledge of the officer in the course of the proceedings. But if both the items are unconnected and totally alien then the assessing authority has to follow sub-section (2)of section 148 with regard

to the escaped income which comes to his knowledge during the course of the proceedings."

Hence, the view of the Punjab and Haryana High Court and the Kerala High Court was that, once the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment and proceeds to issue a notice under section 148, it is not open to him to assess or, as the case may be, reassess the income under an independent or unconnected issue, which was not the basis of the notice for reopening the assessment.

assessment and also any other income chargeable to tax. The words "and also" cannot be ignored. The interpretation which the Court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose .Parliament having used the words "assess or reassess such income and also any other income chargeable to tax which has escaped assessment", the words "and also" cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word "or". The Legislature did not rest content by merely using the word "and". The words "and", as well as "also" have been used together and in conjunction.

The Shorter Oxford Dictionary defines the expression "also" to mean 'further, in addition, besides, too'. The word has been treated as being relative and conjunctive. Evidently, therefore, what Parliament intends by use of the words "and also" is that the Assessing Officer, upon the formation of a reason to believe under section147 and the issuance of a notice under section 148(2) must assess or reassess: (i) 'such income'; and also (ii)any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The words 'such income' refer to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or

reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the season to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from 1-4-1989 clearly stipulated that the Assessing Officer has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice during the proceedings. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter.”

we find that the Assessing Officer has accepted the objections of the

assessee, and has not assessed or reassessed the income, which was

the basis of the notice. Therefore, in light of the judgment of the

Hon'ble High Court of Bombay [supra] it would not be open to the

Assessing Officer to assess income under some other issue

independently.

judgment of the Hon'ble High Court of Bombay [supra] we quash the

assessment order dated 28.12.2016 framed u/s 147 r.w.s 143(3) of the

Act. Since we have quashed the assessment order, we do not find it

necessary to dwell into the merits of the case.

148/DEL/2020 is allowed.

The order is pronounced in the open court on 08.09.2021 in the

presence of both the rival representatives.

Sd/- Sd/-

[SUCHITRA KAMBLE] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 08th September, 2021

VL/