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Income Tax Appellate Tribunal, DELHI BENCH “SMC-1”: NEW DELHI
Before: SHRI R.K. PANDA
PER R.K. PANDA, AM
This appeal filed by the assessee is directed against the order dated 4th December, 2018 of the Ld. CIT(A) Ghaziabad relating to assessment year 2008-09.
Facts of the case, in brief, are that the assessee is an individual. In this case, the AO reopened the case of the assessee u/s 148 of the I.T. Act by recording the following reasons :-
“M/s. Space Chem Engineers Private Limited E-81,
Bulandshahr Road has filed it's Income Tax Return for A.Y, 2008-09 showing income of Rs 20,420/- on 15.10.2008 through E-fiiing. As per information available on record M/s Space Chem Engineers Private Limited has taken entry in the form of share capital/share application money amounting to Rs. 30,00,000/- from a group of company owned by Sh. Surendra Kumar Jain and Virendra Kumar Jain namely M/s Hilfridge investments Ltd. and M/s Worldlink Telecom Ltd. during financial year 2007-08.
It is found that during the course, of search & survey proceedings, it was revealed that Sh. Surendra Kumar 'Jain and Sh. Virendra Kumar Jain was engaged in the business of providing RTGS/cheques/PO/DD in lieu of cash through many dummy companies. The above two
companies are found to be dummy companies of these persons.
In view of the above, I have reasons to believe that M/s Space Chem Engineers Private Limited has plough back his own undisclosed money to be extent of. Rs. 30,00,000/- in the disguise of share capital/share application money during the financial year 2007-08. Thus, the income of the assessee, chargeable to tax for A.Y. 2008-09 has escaped assessment within the meaning of section 147 of the Act, being failure to disclose the correct income on the part of assessee.”
Subsequently notice u/s 148 was issued after obtaining prior approval of Addl. CIT, Range-2, Ghaziabad on 27th March, 2015. However, none attended, nor any written submissions were filed in compliance to notice u/s 148 of the Income Tax Act. There was also no compliance to the notice u/s 142(1) of the I.T. Act on various dates for which the AO issued notice u/s 271(1)(b) of the Act.
Subsequently the AR of the assessee attended and filed certain details and it was submitted that the return already filed may please be treated as return filed in compliance to notice u/s 148 of the I.T. Act.
Subsequently the assessee requested for supply of the reasons which were provided to the assessee on 23rd March, 2016. The assessee challenged the proceedings initiated u/s 147 of the Act on the ground that the assessee has not received any such share capital from the companies name in the reasons so recorded and provided to it. It was accordingly, argued that the reasons are non-existent and the notice is against law and, therefore, the said notice should be vacated. It was further requested that if any other information is available on record other than what has been provided should also be provided to the assessee so that the assessee can reply to the same. The assessee requested that since the notice issued u/s 148 of the Act was issued on the basis of certain non-existent reason and there was even no reason to believe nor there was any satisfaction before issuance of the
notice, therefore, the said notice issued u/s 148 should be vacated.
However, the AO was not satisfied with the objections raised by the assessee and dismissed the same on the ground that the company has taken share capital from the following three companies :
M/s. Lotus Real Con (P) Ltd.
M/s. Mega Top Promoters (P) Ltd.
M/s. Micro Land Developers (P) Ltd.
He noted that the above three companies are owned by Shri Surender Kumar Jain and Virender Kumar Jain and in whose case it was found during the course of search and seizure operation that the group was engaged in providing bogus entries in lieu of cash through many dummy companies. He noted that the claim of M/s. Hilridge and worldlink has inadvertently been written in the reasons recorded u/s 147 and it is only a typographical error.
Relying on various decisions, the AO rejected the objections made by the assessee.
Subsequently the AO asked the assessee to produce the directors of the companies and produce the books of accounts and the share holder’s register. However, in absence of any compliance to the said requirements, the AO invoking the provisions of section 68 of the I.T. Act treated the same as unexplained cash credit and made addition of Rs. 30 lacs to the total income of the assessee.
Before Ld. CIT(A), the assessee, apart from challenging the addition on merit challenged the validity of reassessment proceedings. The assessee also filed certain documents in shape of additional evidences since the AO had not given adequate opportunity of being heard to the assesee. However, the Ld. CIT(A) rejected the application filed for admission of the additional evidences under Rule 46A and sustained the addition on merit on the ground that no specific submissions have been made by the assessee during the appeal proceedings.
So far as the validity of the reassessment proceedings are concerned, the Ld. CIT(A) decided the same against the assessee by observing as under :-
“ Ground nos. 2, 3, 4, 5 and 7: The appellant has challenged the order contending that AO did not have reason to believe and appellant did not provide any material based on which AO made his belief. Examination of facts reveals that appellant e-filed return declaring an income of Rs. 20,420/-. The AO noted that the appellant was engaged in accepting share application money of Rs. 30,00,000/- from two private Ltd. companies owned by Shri Surndra Kumar Jain and Shri Virendra Kumar Jain, who inturn were engaged in business of providing cheques/pay order in lieu of cash through dummy companies. On receipt of such information, about the appellant having accepted share application money during the year, the AO issued notice u/s 148 after statutory approvals. The appellant raised objections to notice u/s 148, which were duly replied by
AO vide order sheet dt. 28.03.2016. Right to cross examine a statement which is only secondary evidence does not invariably lead to breech of principle of natural justice. Reliance is placed on the decision of GTC Industries Ltd. vs ACIT 65 ITD 380. If appellant is aware of the facts being used against it there is no need for giving opportunities to cross examine. Moreover, if AO received information from Investigation Wing for issue of notice u/s 147, AO is to discharge his official duty by taking action u/s 147. Reliance is placed in this regard on the decision of Hon'ble Apex Court in cases of ITO vs Purshottam Das Banur & Anr. (SC) 224 ITR 362 and ITO vs Selected Dalurband Coal Co. (P) Ltd. (SC) 217 ITR 597.
5.2.1 According to the appellant, while recording reasons, AO has mentioned the name of different companies than the actual company from who appellant has taken the share application money. This fact was appropriately dealt in by AO as according to the AO appellant has accepted share capital from three companies namely
Lotus Real Cone Pvt. Ltd., Mega Top Promoters Pvt Ltd. and Micro Land Developers Pvt. Ltd. The above companies were also owned by Shri Surendra Kumar Jain and Shri Virendra Kumar Jain and AO has rightly placed reliance on the decision of Hon'ble Supreme Court in the case of S S. Narayanappa vs CIT 63 ITR 219 (SC) to hold that the proceedings initiated u/s 147 are valid. The appellant placed reliance on Hon'ble Supreme Court in the case of CIT vs Kelvinator of India 312Taxman 187 wherein Hon'ble Apex Court laid down the law that AO should have information in his possession for reasons to believe that income chargeable to tax has escaped assessment and mere change of opinion cannot become per se reason to reopen the proceedings. The ratio of above said judgment rather validates action of the AO as in this case wherein he had information in his possession and it is not a case of change of opinion. The appellant failed to substantiate that the other case laws relied upon by it are factually and materially similar to its own case. Keeping in view
above facts and position of law these grounds of appeal are not maintainable, accordingly, dismissed.”
Aggrieved with such order of the Ld. CIT(A) the assessee is in appeal before the Tribunal by raising the following grounds :-
“Because, the order of learned lower authority is bad in law & against the facts and circumstance of the case.
Because, Id. CIT(A), erred in law in sustaining the validity of the notice u/s 148, which is issued on non-existing and wrong reasons on which no addition is made and so notice is without any foundation and proceedings are void ab initio.
Because, Id. C.l.T (Appeals) has further erred in not appreciating that neither there is any material nor any ' reasons to believe' based on any material and notice is issued without any application of mind and satisfaction of AO/approving authority to conduct roving enquiries and hence the same is beyond jurisdiction.
Because, Id. CIT (Appeals) is grossly wrong in holding that, if AO received information from investigation wing for issue of notice u/s 147, AO is
discharge his official duty by taking action u/s 147, and hence wrongly justified issuance of notice admittedly on borrowed satisfaction.
Because, Id. CIT (A) erred in justifying non-supply of underlying material/statement etc. with opportunity to cross despite specific request.
Because, without prejudice to above and in alternative on merits, Id. CIT (A) erred in dismissing the appeal without considering the material/submissions on record and without appreciating that neither AO has rejected any evidence nor discharged onus lay upon him to reject transactions. Therefore, it is prayed that notice/order under question may kindly be quashed, however only as an alternative it is prayed that addition may be quashed.”
Ld. Counsel for the assessee referring to the reasons recorded by the AO submitted that such reason so recorded was based on non existent/incorrect reasons. He submitted that although the reasons recorded alleged that assessee has received share capital/share application money of Rs. 30 lacs from M/s. Hillridge Investment Ltd. and M/s. World Link Telecom Ltd. however, the fact remains that no such share capital has been
received by the assessee from the above two companies. Relying on the following decisions, the Ld. Counsel for the assessee submitted that when the notice u/s 148 is based on non existent/incorrect reasons, the same is invalid and the addition based on such reason, notice and proceedings become infructuous :-
(A) KOLAHAI INFOTECH P LTD. V ITO (2018) 409 ITR 595(DEL)
(B)MUMTAZ HAZI MOHMAD MEMON (2018)408 ITR 268 (GUJ)
(C)SHRI SANJEEV MALHOTRA V DCIT –ITA NO.723 / D / 2018 (DEL -‘G’) (D) ASHWANI ATRISH V ITO – ITA NO. 563/D/2019 (DEL-SMC) (E) JAGAT SINGH V. ITO-ITA NO. 2749/D/18(DEL-C) (F) GLOSIL LEASING & FINANCE (p) LTD. V. ITO-ITA 4912/2012(DEL-C) (G) ORIENTAL BANK OF COMM V ADDL. CIT [2014] 49 TAXMANN.COM 485 (DELHI)
Ld. Counsel for the assessee in his next plank of arguments referred to page 32A of the paper book and drew the attention of the bench to the approval given by the higher authorities wherein it has been mentioned that “Yes. I am satisfied that this is a fit case for issue of notice u/s 148 of I.T. Act’ . However, it is not known who has signed this, since there is no signature of any
authority after such approval. Referring to page 31 of the paper book, he submitted that the AO vide letter dated 27th March 2015 addressed to the Addl. CIT Range 2, Ghaziabad has forwarded the proposal u/s 147 of the I.T. Act in case of the assessee. He submitted that had the Additional CIT applied his mind the so called typographical error as mentioned by the AO would have come to his notice and either he would not have given his approval or would have directed the AO to revise the proposal. He submitted that having not done so it is clearly discernable that the Addl. CIT has not at all applied his mind and has given his approval in a mechanical manner. Referring to the following decisions, he submitted that when the notice issued u/s 148 of the I.T. Act was without any satisfaction or application of mind by the approving authority, such notice and subsequent proceedings become “void” :-
A.YUM REST. ASIA PTE LTD. VS DCIT [2018]99 TACMANN,COM 423 (DEL)
B. CIT V. S. GOYANKA LIME & CHEMICALS LTD. (2015) 56 TAMNANN.COM 390 (MP)-SLP DISMISSED IN 64 TAXMANN.COM 313 (SC)
C. N.C. CABLE (2017) 391 ITR 11 (DELHI)
Referring to the following decisions, Ld. Counsel for the assessee submitted that when the reopening of the assessment has been made on the basis of borrowed satisfaction from the investigation wing and the AO has not applied his mind, such notice issued u/s 148 is invalid and the subsequent proceedings also become infructous and illegal :-
A) M/S. PT ENGINEERS P. LTD 86 & 87/2015
B) ACIT V. M/S ASIS PLYWOOD PVT. LTD. (ITA NO. 2144/D/15)(28/01/2019)
C) PR. CIT V. MEENAKSHI OVERSEAS [2017] 82 TAXMANN.COM 300(DELHI)
D) PR. CIT V G&G PHARMA LTD. 2016-384 ITR 147 (DEL.)
E)ANDAMAN TIMBERS INDUSTRIES V. CCE[2015] 62 TAXMANN.COM 3(SC)
Referring to the following decisions, the Ld. Counsel for the assessee submitted that the addition made by the AO without any material against the assessee and without any enquiry etc. is invalid :-
A) PCIT V. Best Infrastructure (India) (P.) Ltd. *[2017] 84 Taxmann.com 287 (Delhi)
B) CIT v. Gangeshwari Metals P. Ltd. [2014] 361 ITR 10 (DEL.)
Ld. Counsel for the assessee further submitted that the notice u/s 143(2) was issued to the assessee on the very same day on which the assessee replied to the AO that the return already filed may be treated as return filed in response to the notice u/s 148 of the I.T. Act. He submitted that the assessee filed this letter on 14th March, 2016 and the AO also issued and served the notice u/s 143(2) on 14th March, 2016 i.e on the very same day when the return was filed.
Referring to the following decision he submitted that when the notice u/s 143(2) was issued to the assessee on the very same day immediately after making compliance to the notice u/s 148 of the I.T. Act such notice issued u/s 143(2) is invalid. Therefore, in absence of valid notice u/s 143(2) assessment becomes null and void :-
A)MASTECH TECHNOLOGIES P. LTD. – 407
B)SATISH KUMAR VS. ITO (ITA NO. 3586/D/2018 (14.01.2019)
C)CIT V. RAJEEV SHARMA [2011]336 ITR 678 (ALL)
He accordingly, submitted that the reassessement proceedings initiated by the AO and upheld by the Ld. CIT(A) should be quashed.
Ld. DR on the other hand relied on the order of the Ld. CIT(A) and filed the following written synopsis :-
“ The assessee company has come before your honour on the basic ground of minor technical defect in Recording the Reasons for reopening the case u/s 147 for A.Y. 2008-09.
The fact of the case are - that AO while Recording the Reasons for Reopening the case u/s 147 of Income Tax Act in assessee’s case (i.e. M/s Space Chem Engineers Pvt. Ltd. PAN-AALCS8969E) for A.Y. 2008-09, has mentioned the names of two companies i.e. M/s Hillridge Investment Limited & M/s World Link Telecom Ltd., from whom bogus Share Application money/Capital amounting to Rs. 30 lakhs were received by the assessee company, in entry operator case of Surender Kr. Jain and Virender
Kr. Jain Group (on whom the Income Tax department conducted search and they accepted that they are entry operators as the document had been received by the A.O. from the Directorate of Income Tax, Investigation-il, New Delhi). They had also named 3 companies by whom the amount of Rs. 30 lakhs (Rs. 10 Lakhs by each co.) was paid to the assessee company by way of Share Application/Capital in lieu of cash received and cheques issued and necessary documents were created to prove Creditworthiness, genuineness of transaction and Identity was created of the Bogus Companies.
The technical mistake committed by A.O. in this cases was that while typing reasons for reopening the case u/s 147, the names of 2 companies namely- ‘
M/s Hillridge Investment Limited 2. and 2. M/s World Linkelecom ltd. were wrongly typed instead of 3 companies namely as under:-
M/s Lotus Realcon Private Limited 2. M/s Mega Top Promoters Private Limited 3. M/s Micro Land Developers Private Limited
The assessee company is taking this plea only on technical ground to save itself from paying Income Tax, Interest, Penalty & may be prosecution and used dishonest means.
The basic issues on the Facts are as under:-
The assessee company is not refuting the fact that the names of 2 companies and 3 companies as mentioned above were not in the list of companies by whom the Bogus Entries were given by way of giving Cheques and receiving Cash (in lieu of same against commission) from Group of Surender Jain and Virender Jain, Entry Operators (who have accepted in their statement while in search proceedings on them, to whom they have given Bogus Entries in any form).
The AO in his Asstt. Order has already mentioned and corrected that typographical mistake which occurred while Recording the Reasons (see Para-4 page-5 of Asstt. Order), as the fact still remains that the Entries of 3 companies amounting to Rs.30 lakhs was given to assessee Company and whether it was by 2 companies wrongly mentioned or by 3 companies as corrected by A.O., does not matter. The real issue remains that the amount of Rs. 30 Lakhs was brought
into the Books of Accounts of assessee company dishonestly and A.O. tried to prove the same in Assessment proceedings by way of verification from assessee and 3rd parties. Hence, the genuineness of transaction is doubtful.
As per page-55 & page-74, of the Paper Book filed, the Regd. Office addresses of 2 companies namely M/s Lotus Realcon Private Limited & M/s Micro Land Developers Private Limited are same in Delhi.
Hence, the Identity of the Companies are Doubtful.
The copies of Income Tax Returns of 2 Companies filed in Paper Book by the asseessee shows- at page-52 of M/s Mega Top Promoters Private Limited & page-72 of M/s Micro Land Developers Private Limited, 'Nil' Income filed and no taxes have been paid. Whereas copy of 3rd company's 1TR (i.e. M/s Lotus Realcon Private Limited) has not been filed. Further as per latest Company Master Data from MCA site shows that in the case of M/s Lotus Realcon Private Limited the last Balance Sheet was filed on 31.03.2015 and Status of the company is being shown as that it has got ‘Converted to LLP'. Hence, the Creditworthiness of 3 companies is doubtful.
The many cases Laws mentioned by the assessee's representative are not similar on facts of the present case and issues involved are of
facts and hence not applicable in this case. Even Ld. CIT(A) in his order has clearly identified this issue & discussed (see- Para-5.2.1 Page- 24,25).
The dishonest intent of the assessee is clearly visible as mentioned in the Asstt. Order, that assessee was given so many opportunities to appear before A.O. by issuance of Notices u/s 142(1) & penalty notices (Page-2 of Asstt. Order) but none appeared on behalf of the assessee. Just at the fag end of the Time Barring month of Assessment (i.e. on 31.03.2016), the assessee appeared and objected to the reasons recorded by the A.O. The assessee was given an opportunity to produce the Directors of 3 companies mentioned as above and also to produce Share Holders Register on 29.03.2016. But the assessee did not produce the same for Verification and hence, the Assessment has been made.
The AR of the assessee company is taking plea on technical ground of 7. Recording of Reasons in his Grounds of Appeal (GOA), but he is defending dishonest intent of the assessee company in paying due Income Tax as the Recording of Reasons before issuing the notices u/s 147 is basically to inform under Principle of Natural Justice, so that to inform assessee that there are
grounds of escapement of Income and honest Tax Payer is not subjected to Scrutiny. But technical issue of any minor typographical mistake in Recording Reasons be not the ground for scrapping the valid assessment made of the Income of the assessee by the A.O. after following all valid procedures of assessment. Further, the Directorate of Income Tax, Investigation-II, New Delhi is the another wing of the Income Tax Department and they follow the Income Tax procedures / Rules and do their action as per the Income Tax Act and work as the arm of the Assessment Unit by way of supplementing the A.O. in proper Assessment of the Income of the assessees as per the provisions under different sections of the Income Tax Act.
(Sanjiv Mahajan) Addl. CIT VU-1(3), New Delhi (Departmental Representative)”
I have considered the rival arguments made by both the sides, perused the orders of the AO and Ld. CIT(A) and the paper book filed on behalf of the assesee.I have also considered the various decisions cited before me. I find the AO in the instant case reopened the assessment u/s 147 of the Act by recording reasons that the assessee has received share capital / share application
money of Rs. 30 lacs from M/s. Hilridge Investment Ltd. and M/s. Worldlink Telecom Ltd. during the financial year 2007-08. However, when the assessee raised objections to such reopening, the AO while disposing of the objections raised by the assessee came out with the new plea that assessee company has taken share capital from M/s. Lotus Real Con (P) Ltd. , M/s. Mega Top Promoters (P) Ltd. and M/s. Micro Land Developers (P) Ltd. which are also owned by Shri Surender Kumar Jain and Virender Kumar Jain group of companies and the name of M/s. Hilridge Investment Limited and M/s. Worldlink Telecom Ltd. has inadvertently written in the reasons recorded u/s 147. I find the Addl. CIT while giving approval has simply mentioned “ Yes. I am satisfied that this is a fit case for issue notice of u/s 148 of the I.T. Act” Under these circumstances, I have to see the validity of such reassessment proceedings.
A perusal of the reasons recorded shows that the name of the companies from whom the assessee company is alleged to have accepted share capital / share application money are different from the companies mentioned in the assessment order from
whom the assessee company has actually taken the share capital / share application money. Even the Ld. DR in his written synopsis has also admitted the mistake stating that the same is a typographical error. This clearly shows that neither there was any independent application of mind by the AO while recording reasons nor application of mind by the Addl. CIT while giving approval. The reassessment proceeding was made on wrong and incorrect facts and, therefore ,makes the reopening null and void.
The Hon’ble Delhi High Court in the case of PCIT vs. Meenakshi Overseas (P) Ltd. reported in 395 ITR 677 (Delhi) has held that where reassessment was resorted to on the basis of information from DIT (Investigation) that assessee had received accommodation entry but there was no independent application of mind by Assessing Officer to tangible material and reasons failed to demonstrate link between tangible material and formation of reason to believe that income had escaped assessment, reassessment was not justified.
The various other decisions relied on by the Ld. Counsel for the assessee to the proposition that the reassessment proceedings initiated on wrong and incorrect facts make the reopening null and void also supports his case. I, therefore, hold that the notice issued by the AO u/s 148 of the I.T. Act by recording wrong and incorrect reasons for reopening of the case makes the reopening null and void.
Even otherwise also I find that the Addl. CIT who has given approval for such reopening has simply mentioned that “ yes, I am satisfied that this is a fit case for issue notice of u/s 148 of I.T. Act”. A perusal of the approval given by the Addl. CIT shows that he has not applied his mind properly and has in a mechanical manner given his approval. I find the Hon’ble Delhi High Court in the case of N.C. Cables Ltd. (supra) has held as under :-
" Reassessment-Issuance of Notice-Sanction for issue of Notice- Assessee had in its return for A Y 2001-02 claimed that sum of Rs. 1 Crore was received towards share application amounts and a further sum of Thirty Five Lakhs was credited to it as an advance towards loan-Original
assessment was completed u/s 143(3)-However, pursuant to reassessment notice, which was dropped due to technical reasons, and later notice was issued and assessments were taken up afresh-After considering submissions of assessee and documents produced in reassessment proceedings, AO added back a sum of Rs.l,35,00,000-CIT(A) held against assessee on legality of reassessment notice but allowed assessee's appeal on merits holding that AO did not conduct appropriate enquiry to conclude that share inclusion and advances received were from bogus entities-Tribunal allowed assessee's appeal on merits-Revenue appealed against appellate order on merits-Assessee's cross appeal was on correctness of reopening of assessment- Tribunal upheld assessee's cross objections and dismissed Revenue's appeal holding that there was no proper application of mind by concerned sanctioning authority u/s Section 151 as a pre- condition for issuing notice u/s 147/148- Held, Section 151 stipulates that CIT (A), who was competent authority to authorize reassessment notice, had to apply his mind and form opinion- Mere appending of expression
'approved' says nothing- It was not as if CIT (A) had to record elaborate reasons for agreeing with noting put up-At same time, satisfaction had to be recorded of given case which could be reflected in briefest possible manner- In present case, exercise appears to have been ritualistic and formal rather than meaningful, which was rationale for safeguard of approval by higher ranking officer-Revenue's appeal dismissed."
Respectfully following the above decision I hold that the reassessment proceedings initiated by the AO are not as per law and has to be quashed.
In view of the above discussion, I am of the considered opinion that the reassessment proceedings initiated by the AO by recording wrong and incorrect facts and the approval given by the Addl. CIT in a mechanical manner without application of mind makes the entire reassessment proceedings a nullity. Therefore, the reassessment proceeding initiated by the AO becomes invalid on both the above counts. I, therefore, quash the reassessment
proceedings. The legal grounds raised by the assessee challenging the reassessment proceedings are accordingly allowed. Since the assessee succeeds on this legal ground, the grounds challenging the addition on merit are not being adjudicated. The appeal filed by the assessee is accordingly allowed.
In the result the appeal filed by the assessee is allowed.
Order pronounced in the open court on 18th March, 2021.
sd/-
(R.K. PANDA) ACCOUNTANT MEMBER Dated: 18/03/2021 Veena Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi