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Income Tax Appellate Tribunal, DELHI BENCHES “SMC-1” : DELHI
Before: SHRI BHAVNESH SAINI & SHRI B.R.R. KUMAR
PER BHAVNESH SAINI, J.M. This appeal by Assessee has been directed against the Order of the Ld. CIT(A)-22, New Delhi, Dated 26.04.2018, for the A.Ys. 2009-2010 and 2010-2011.
We have heard the Learned Representatives of both the parties through video conferencing and perused the findings of the authorities below.
2 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. 3. In both the appeals, the assessee challenged the initiation of re-assessment proceedings under section 147/148 of the I.T. Act, 1961, validity of sanction granted under section 151 of the I.T. Act, 1961 and addition of Rs.10 lakh each under section 68 of the I.T. Act, 1961 and addition of Rs.18 lakhs each on account of Commission.
Briefly the facts of the case are that assessee company filed its return of income for the A.Y. 2009-2010 on 25.09.2009 declaring Rs.(-)5,90,668/- and on 28.09.2010 for the A.Y. 2010-2011 declaring income of Rs. (-)24,235/-. The A.O. received information from Investigation Wing vide letter Dated 12.03.2013 mentioning that search was carried-out in the case of Shri S.K. Jain Group of cases and it is transpired that assessee has received accommodation entry of Rs.10 lakhs each in both the assessment years under appeal from M/s. VIP Leasing and Finance P. Ltd., and M/s. Mega Top Promoters P. Ltd., in a sum of Rs.10 lakhs each. The A.O. after giving an opportunity of being heard to the assessee, made additions of Rs.10 lakhs in both the assessment years under appeals and have also added Rs.18,000/- on account of unexplained expenditure to obtain accommodation entry. The assessee
3 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. challenged the re-assessment proceedings as well as additions before the Ld. CIT(A), however, both the appeals of the assessee have been dismissed.
5. Learned Counsel for the Assessee referred to the copies of the reasons recorded for reopening of the assessment in which the A.O. has mentioned that Section 147(b) is applicable in the aforesaid cases for reopening of the assessment. He has submitted that the said Section does not exist in the Statute. Therefore, incorrect reasons are recorded and there was non- application of the mind on the part of the Approving Authority while giving sanction under section 151 of the I.T. Act, 1961. He has submitted that the issue is covered by Order of ITAT, Delhi G-Bench, Delhi in the case of VRC Township Pvt. Ltd., Delhi vs., ITO, Ward-17(1), New Delhi in ITA.No.1503/Del./2017 vide Order Dated 14.10.2020 in paras 6 and 7 the Tribunal held as under :
“6. We have considered the rival submissions. It is well settled Law that validation of re-assessment proceedings shall have to be determined with reference to the reasons recorded for reopening of the assessment. The Ld. CIT(A) filed copy of the reasons recorded for reopening of the assessment at pages 14 and 15 of the PB. The same read as under :
4 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi.
5 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi.
6 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. 6.1. The above recording of reasons for initiation of re- assessment proceedings clearly show that in para 7 A.O. has mentioned Section 147(b) of the I.T. Act is applicable for reopening of the assessment, though such Section does not exist in the statute on the day of recording of the reasons for reopening of the assessment. Column Nos.8 and 9 above are ‘Blank’ and did not provide any details. It did not say if assessee has filed any return earlier and whether assessee was assessed to tax prior to recording of the reasons, though the fact remain that assessee filed return of income voluntarily for the assessment year under appeal on 31.10.2007 through e-filing and such record was available with the A.O, therefore, non-mentioning of the correct fact would lead to the conclusion that no material was available before A.O. to come to the conclusion that there is escapement of income based on the facts. Similarly, the Addl. CIT, without pointing-out the mistake and error in the reasons recorded above, in a most mechanical manner granted sanction to the reopening of the assessment. It is a settled principle of Law that sanction granted by the higher authority for issuing of 7 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. reopening notice has to be on due application of mind. It cannot be a mechanical approval without examining the proposal sent by the A.O. It appears from the reasons recorded above that the A.O. as well as Addl. CIT have not applied their mind and by mentioning wrong Section i.e., 147(b) of the I.T. Act came to the conclusion that there is escapement of income under section 147(b) of the I.T. Act which no longer exist in the statute. The Learned Addl. CIT instead of pointing-out such glaring mistake in the reasons and even finding two Columns ‘Blank’ in the reasons granted approval, even without mentioning how he was satisfied with the reasons for reopening of the assessment in the matter. Such issue have been examined by the Hon’ble Bombay High Court in the case of Kalpana Shantilal Haria vs., ACIT (supra) in which in Paras 5 to 8 it was held as under :
Our attention is invited to the sanction given by the Joint Commissioner of Income Tax on the application by the Assessing Officer seeking his approval in the prescribed form. The prescribed form filled by the Assessing Officer indicated that 8 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. the notice has been issued under Section 143(b) of the Act. The Joint Commissioner of Income Tax has while granting the sanction has recorded the word "satisfied".
6. The grievance of the petitioner is that there is no proper sanction in view of non application of mind by the Joint Commissioner of Income Tax. The Assessing Officer has invoked a provision of law to sustain the impugned notice which is admittedly not in the statute and the Joint Commissioner has yet approved it.
7. Mr. Chanderpal, learned Counsel appearing for the Revenue tendered a copy of the letter dated 19th December, 2017 issued to the petitioner wherein the Assessing Officer has stated that the words "147(b)" were inadvertently filled in the prescribed form, instead of Section 147 of the Act while obtaining the sanction from the Joint Commissioner of Income Tax. It is further submitted on behalf of the Revenue that the same
9 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. is a curable defect under section 292B of the Act. Therefore, the impugned notice cannot be held to be bad for mere incorrect mentioning of section on account of the mistake.
8. There can be no dispute with regard to the application of Section 292B of the Act to sustain a notice from being declared invalid merely on the ground of mistake in the notice. However, the issue here is not with regard to the mistake / error committed by the Assessing Officer while taking a sanction from the Joint Commissioner of Income Tax but whether there was due application of mind by the Joint Commissioner of Income Tax while giving the necessary sanction for issuing the impugned notice. It is a settled principle of law that sanction granted by the higher Authority for issuing of a reopening notice has to be on due application of mind. It cannot be an mechanical approval without examining the proposal sent by the Assessing Officer. Prima facie, it appears to us 10 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. that if the Joint Commissioner of Income Tax would have applied his mind to the application made by the Assessing Officer, then the very first thing which would arise is the basis of the notice, as the provision of law on which it is based is no longer in the statute. Non pointing out the mistake / error by the Joint Commissioner of Income Tax on the part of the Assessing Officer is prima facie evidence of non-application of mind on the part of the sanctioning authority while granting the sanction.”
6.2. The ITAT Delhi G-Bench, New Delhi in the case of Shree Balkishan Agarwal Glass Industries Ltd., Delhi vs., DCIT, Circle-8(1), New Delhi (supra) following the Order of ITAT Delhi Bench in the case of DCIT vs., M/s. KLA Foods (India) Ltd., and Others, quashed the reopening of the assessment holding that recording reasons are based on wrong facts and approval was given in a mechanical manner, therefore, reopening of the assessment is held to be invalid.
11 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. The findings of the Tribunal in paras 23 to 28 is reproduced as under :
“23. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, based on the report of the Investigation Wing that the assessee has received accommodation entries from Shri Surendra Kumar Jain and Virendra Kumar Jain controlled/managed companies, reopened the assessment by recording the following reasons:-
“ANNEXURE- ‘A’ M/s Shri Balkishan Agarwal Glass Industries Ltd. J-4-126-B, D.D.A. Flats Kalka Ji, New Delhi-110019 Assessment Year; 2005-06 Reasons for belief that income has escaped assessment; Enquiries were conducted by the Investigation Wing of the Dept in the case of Shri Surendra Kumar Jain Group. During the course of post search investigation and preparation of appraisal report it has been evidently established that SH. S.K, Jain and his brother Sh. Virendra Jain are known entry providers and are in the 12 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. business of providing accommodation entries to various beneficiary companies/entities/persons through cheques through a number of paper & dummy companies in lieu of cash. These dummy companies are totally managed and controlled by Sh. Surendra Kumar Jain and his brother Sh. Virendra Jain.
The company M/s Shri Balkishan Agarwal Glass industries Ltd. has also received accommodation entry from Sh. S. K. Jain during the F.Y.2004-05. Details of cheque/pay orders issued in the name of the assessee are reproduced below:-
Bank Cheq Th Anne Page Book Cheque/ ue ro xure No, From TO Bank Amount Date RTGS Date ug No. h Shri Balkishan 11- Ne A- 22 PIO No. AVAIL Agarwal Glass Industries ABN Nov- 500000 er 148 947828 Ltd. 04 aj Shri Balkishan Agarwal 11- Ne A- 22 Glass Industries Ltd, PIO No. AVAIL ABN Nov- 500000 er 148 947829 04 aj Shri Balkishan Agarwal 11- Ne A- 23 PIO No. AVAIL ABN 500000 Glass Industries Ltd. 947830 Nov- er 148 13 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi.
04 aj Shri Balkishan Agarwal 11- Ne A- 23 Glass Industries Ltd. PIO No. GRAPH ABN Nov- 500000 er 148' 947827 04 aj Shri Balkishan 11- Ne A- 23 PIO No! Agarwal Glass Industries GRAPH ABN Nov- 500000 er 148 947826 Ltd. 04 aj 24- Ch A- 27 PIO No. GRAPH ABN Nov- 500000 aw 148 974556 Shri Balkishan Agarwal Glass Industries Ltd. 04 la SMART Shri Balkishan Agarwal 25- No Ne A- 28 Glass Industries Ltd. v- 04 PIO No. EST ABN 500000 er 148 974425 aj Shri Balkishan 25- No Ne A- 28 SMART v- 04 PIO No. Agarwal Glass industries ABN 500.000 er 148, 974426 EST Ltd. aj For Shri Balkishan Agrav Glass industries Shri Balkishan Agarwal Glass Industries 25- Ne A- 28 SMART PIONo. Ltd.' ABN Nov- 500000 er 148 EST 974427 04 aj Shri Balkishan Agarwal Glass industries 20- He A 12 LOVEL PJONo, Ltd. ABN Dec- 500000 er 149 Y 17.8048 04 aj Shri Balkishan Agarwal Glass Industries 28- Ne A- 18 LOVEL Ltd. ABN Dec- 500000 er 149 Y 04 aj 14 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. 5500000 The escapement of income has been clearly on account of failure on the part of the assessee to truly and fully disclose all the material fact necessary for assessment. Thus it is a fit case for initiation of proceedings u/s 148 of I.T.Act, 1961. Therefore, I have reason to believe that an income of Rs,55,00,0QQ/- lias escaped assessment within the meaning of section 147 of the Income Tax Act 1961.
No assessment u/s 143(3) has been done earlier. The assessment record is being submitted for kind perusal and approval of the Addl. Commissioner of Income-tax, Range-8, New Delhi according to section 151(1) of the IT Act, 1961 for issuance of notice u/s 148 of the IT Act. Sd/- (Nishtha Tiwari) Dy. Commissioner of Income Tax Circle-8(1), New Delhi”
We find, in the performa for recording reasons for initiating proceedings under section 148 and for obtaining approval of the Addl. CIT, the AO at para 7 of the performa has mentioned that the assessee has not filed the return voluntarily. The form for recording reasons for initiating the proceedings is reproduced hereunder for the sake of clarity:-
15 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi.
16 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi.
A perusal of the above shows that at clause 7(a) the AO has categorically mentioned that no return has been filed by the assessee. However, a perusal of the paper book page 1 shows that the assessee has duly filed its return of income on 31.3.2006 declaring total loss of Rs.2,79,76,596/- vide receipt number 0851001128. A perusal of Page 3 of the paper book shows that the return was processed under section 143(1) on 26th July 2006. Thus, it is seen that the AO had no occasion to go through the return filed by the assessee along with the audited accounts before recording reasons and has mentioned that no return has been filed while reopening the assessment and the ld. Addl. CIT, without application of mind, has simply mentioned, “I am satisfied that this is a 17 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. fit case for issue of notice under section 148.” The Hon’ble Bombay High Court in the case of Kalpana Shantilal vs ACIT 100 CCH 0165 has held that sanction granted by higher authority for issuing of reopening notice had to be on due application of mind and it could not be mechanical approval without examining proposal sent by AO. The Hon’ble Delhi High Court in the case of Yum Restaurants Ltd. vs Dy. Director of Income Tax 99 CCH 232 has held that where authorities appear to have concurred with reasons for reopening assessment without applying their mind, reopening of assessment would be invalid. The Hon’ble Bombay High Court in the case of Ankita A. Choksey vs. Income Tax Officer And Others (2019) 411 ITR 207 (Bom) has held that condition precedent for issue of notice for reassessment is that the reasons to believe that income has escaped assessment must be based on correct facts. Notice based on wrong facts is without jurisdiction and has to be quashed. The Delhi Bench of the Tribunal in the case of DCIT vs. M/s KLA Foods (India) Ltd. and Others, vide order dated 8th April 2019, has held that condition precedent for issue of notice for reassessment is that reason to believe that income has escaped assessment must be based on correct facts. Notice based on wrong facts is without jurisdiction and is to 18 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. be quashed. The Hon’ble Delhi High Court in the case of PCIT vs. M/s SNG Developers Limited, 404 ITR 312, has held that condition precedent for issue of notice for reassessment is that the reason to believe that income has escaped assessment must be based on correct facts. Notice based on wrong facts is without jurisdiction and has to be quashed. The above decision of the Hon’ble High Court was challenged by the Revenue before the apex court and the apex court dismissed the SLP vide SLP No.42379/2007, order dated 9th February 2018. Since, in the instant case, although the assessee has filed return of income which was processed u/section 143(1), however, the AO proceeded to reopen the assessment by mentioning that no voluntary return has been filed by the assessee and, thus, proceeded to reopen the assessment on wrong appreciation of facts on record.
We further find the Hon’ble Delhi High Court in the case of BPTP vs PCIT, vide Writ Petition No.13803/2018, order dated 11th January 2020, has held that if the AO has failed to perform its statutory duty, he cannot review his decision and reopen on a change of opinion. The reopening is not an empty formality. There has to be relevant tangible material for the AO to come to the conclusion that there is escapement of income and 19 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. there must be a live link with such material for the formation of the belief. Mearly using the expression ‘failure on the part of the assessee to disclose fully and truly all material facts’ is not enough. The reasons must specify as to what is the nature of default or failure on the part of the assessee. Similarly The Hon’ble Bombay High Court in the case of Anand Developers vs. ACIT, vide Writ Petition No. 17/2020, order dated 18th February, 2020 has held that a mere bald assertion by the AO that the assessee has not disclosed fully and truly all material facts is not sufficient. The AO has to give details as to which fact or the material was not disclosed by the assessee leading to its income escaping assessment otherwise the reopening is not valid.
Thus, we agree with the argument of the ld. counsel for the assessee that the reason to believe that income has escaped assessment is not based on correct facts and the approval has been given in a mechanical manner and, therefore, such notice based on wrong facts and the approval given in a mechanical manner make the re-assessment proceedings invalid being not in accordance with law. Accordingly we hold that the reassessment proceedings initiated by the AO is not valid in the eyes of law. Accordingly the same is directed to be quashed. Since 20 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. the assessee succeeds on this preliminary legal ground, the other legal grounds as well as the grounds on merit, in our opinion, do not require adjudication being academic in nature.
In the result, the appeal filed by the assessee is allowed.”
6.3. The ITAT Delhi A-Bench in the case of M/s. Behat Holdings Ltd., Delhi vs., ITO, Ward-4(3), New Delhi (supra) examining the issue of 147 based on non-application of mind and that sanction have been granted by the Pr. CIT without recording reasons quashed the reopening of the assessment. The findings of the Tribunal in paras 5 and 6 are reproduced as under :
“5. We have considered the rival submission and perused the material on record. It is well settled Law that validity of re-assessment proceedings shall have to be determined with reference to the reasons recorded for reopening of the assessment. Learned Counsel for the Assessee filed copy of the reasons recorded for reopening of the assessment at pages 16 to 22 of PB. The same reads as under:
21 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. 22 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. 23 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. 24 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. 25 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. 26 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. 27 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi.
5.1. The reasons are un-dated. The A.O. in the assessment order has reproduced the same reasons without application of his mind to the relevant material and thereafter by referring to notice under section 133(6) and non-production 28 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. of the Directors of the Investor Companies made the addition against the assessee. The A.O. in the reasons has mentioned that information was forwarded by Serious Fraud Investigation Office, Delhi which were received through Pr. CIT vide Letter Dated 05.01.2017. The A.O. has also referred to such report based on search and seizure in the case of third parties. The assessee made a request to the A.O. to supply complete copy of the reasons along with Annexures and Report of SFIO Dated 05.01.2017 and approval granted by Pr. CIT. The A.O, however intimated that since SFIO report is confidential, therefore, same cannot be provided to the assessee. Thus, the complete Annexures to the reasons were not provided to the assessee and A.O. has also failed to provide copy of the report dated 05.01.2017 to the assessee which is the basis for reopening of the assessment. Assessee cannot be given surprise to file objections without providing all the relevant material. The report Dated 05.01.2017 is the basis for reopening of the assessment and since it is not confronted and provided to assessee, the assessee may not be able to file proper objections to the reopening of the 29 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. assessment. Thus, the direction given in the case of SABH Infrastructure Ltd., vs., ACIT (supra), have not been applied because it is the duty of the A.O. to provide all the documents and reports which are part of the reasons to the assessee before taking steps into the matter. Further the Addl. CIT while granting or forwarding copy of the reasons to the Pr. CIT for his approval did not mention any fact in the proforma which is blank and no remarks have been mentioned by him despite his signature appeared thereon. The Pr. CIT while granting sanction/approval to reasons recorded for reopening of the assessment has simply mentioned “Yes, I am satisfied”. Such type of approval was not found valid in many cases. The ITAT Delhi C-Bench in the case of M/s. Ganesh Ganga Investments Pvt. Ltd., Delhi vs., ITO, Ward-10(1), New Delhi in ITA.No.1579/Del./2019 for the A.Y. 2010-2011 vide Order Dated 07.11.2019 quashed the reopening of the assessment in the similar circumstances. The entire order is reproduced as under :
30 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. “IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES “C”: DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA.No.1579/Del./2019 Assessment Year 2010-2011 M/s. Ganesh Ganga The Income Tax Officer, Investments Pvt. Ltd., Ward – 10 (1), Room A-52, Top Floor, Street vs., No.206A, C.R. Building, I.P. No.1, Gurunanakpura, Estate, New Delhi. Laxmi Nagar, Delhi–110 092. PIN – 110 002. PAN AAACG2710J (Appellant) (Respondent)
Shri Raj Kumar, C.A. And For Assessee : Shri Rajeev Ahuja, Advocate Shri Sumit Goel, C.A. For Revenue : Ms. Parmit M. Biswas, CIT-DR Date of Hearing : 10.10.2019 Date of Pronouncement : 07.11.2019 ORDER PER BHAVNESH SAINI, J.M.
This appeal by Assessee has been directed against the Order of the Ld. CIT(A)-4, New Delhi, Dated 26.12.2018, for the A.Y. 2010-2011.
31 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. 2. Briefly the facts of the case are that assessee company filed its return of income on 04.02.2011 for the A.Y. 2010-2011 declaring loss of Rs.9,616/- which was processed under section 143(1) of the I.T. Act, 1961. The assessee declared income from brokerage and commission, interest on loan and profit on sale of investment also.
2.1. An information was received from the O/o. CIT, Central-2, New Delhi, vide letter Dated 14.02.2014 mentioning therein that a search/survey operation under section 132/133A of the Income Tax Act, 1961 was conducted by the Investigation Wing at the business and residential premises of Shri Himanshu Verma and his Group on 29.03.2012 wherein after intensive and extensive inquiry and examination of documents seized during the course of search, it has been gathered that the said persons are involved in providing accommodation entries to the persons who were named in the report. During the course of inquiry made by the Investigation Wing, it also came to the notice that Shri Himanshu Verma was engaged in the business of providing accommodation entries through cheques/PO/DD in 32 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. lieu of cash to large number of beneficiary companies through various paper and dummy companies floated and controlled by him. The cash received from the parties for providing accommodation entries was first deposited in the account of these dummy firms/companies in the guise of cash received against the bogus sales duly shown in the books of account. On the basis of the material available on record, the A.O. after recording reasons for reopening of the assessment, issued notice under section 148 to the assessee on 31.03.2017 which was served upon the assessee. The assessee objected to the reopening of the assessment and requested to provide copy of the approval of Competent Authority under section 151 of the I.T. Act, 1961. The Assessee also contended that whatever material was collected at the back of the assessee was not confronted and requested to supply statement of Shri Himanshu Verma, report and data complied / received from Investigation Wing, report and data complied/received by ITO, Ward-10(1), New Delhi, diaries and registers considered as incriminating material seized from Shri Himanshu Verma and any other 33 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. documents which Department wanted to rely. It was further submitted that proceedings under section 147/148 of the I.T. Act, cannot be invoked for making inquiry or verification purposes. The assessee denied receipt of any accommodation entry from any such person. The A.O, however, rejected the objections of the assessee and proceeded to make assessment in the matter. The A.O. noted that in assessment year under appeal, assessee has received Rs.11,05,00,000/- on account of share capital and share premium from 38 parties as noticed during the course of assessment proceedings. The summary of the same is reproduced in the assessment order. The assessee was asked to file complete postal address, PAN and other details of these 38 parties. The A.O. also issued notice under section 133(6) to all 38 share subscriber companies and asked for the details from them. The A.O. received replies from 26 companies. In 06 cases, although notice issued under section 133(6) of the I.T. Act were issued as per new name as well as old name of the company, but, the same were returned back un-served by the Postal Authorities. In the remaining 06 cases, no replies have 34 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. been received. The A.O. noted that replies received from 26 parties under section 133(6) have been analysed and these companies furnished copy of the acknowledgment of ITR, balance sheet as on 31.03.2010, P & L A/c, copy of the bank statement. The A.O. however, did not accept the replies filed by the 26 investor companies on the reasons that replies have been received in bunch for similar style of envelopes and posted from three post offices. The A.O. also noted that none of the parties explained as to why high premium was paid and parties have not explained source of the investment. The A.O. also noted that 26 parties filed copy of the ITR, balance sheet, P & L A/c and bank statement, but, it shows that their income shown is very meagre in the return of income. The assessee was asked to produce the persons/Principal Officers of these entities for verification. However, assessee did not produce the same. The A.O. also analysed the statement of Shri Himanshu Verma through whom amount have been received and the A.O. ultimately rejected the explanation of assessee on genuine share application money received from 38 parties and made 35 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. addition of Rs.11.05 crores. The A.O. further noted that assessee has paid commission in cash for arranging these entries, on which, addition was made of Rs.22,10,000/- i.e., @ 2% of the amount in question which was also added to the returned income.
The assessee challenged the reopening of the assessment as well as additions on merit before the Ld. CIT(A). It was contended that assessment framed on the basis of material / documents / information received from third party and without application of mind by the A.O, therefore, whole assessment is invalid and bad in law. It was further submitted that assessee has shown all the amounts in his books of account and return of income filed with the Department. The A.O. has reopened the assessment by mentioning in the reasons that assessee has received entries of Rs.2.45 crores which fact is incorrect. The initiation of re- assessment have been made merely on the basis of Investigation Wing report without applying the mind. No right of cross-examination have been provided to the assessee to 36 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. the statement of Shri Himanshu Verma and others. The assessee relied upon the following decisions.
3.1. In the case of Pr. CIT vs., RMG Polyvinyl (I) Ltd., 396 ITR 5 (Del.) the Hon’ble Delhi High Court held as under:
In the present case too, the information received from the Inv. Wing cannot be said to be tangible material per se without a further enquiry being undertaken by the learned assessing officer [[3.2. In the case of Pr. CIT vs., Meenakshi Overseas (P) Ltd., 395 ITR 677 (Del.), the Hon’ble Delhi High Court held as under :
Reassessment notice condition precedent recording of reasons to believe that income has escaped assessment mere reproduction of investigation report in reasons recorded absence of link between tangible material and formation of ceding illegal Income Tax Act, 1961, Sec.147, 148 37 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. 3.3. In the case of Pr. CIT vs., G And G Pharma India Ltd., [2016] 384 ITR 147 (Del.), the Hon’ble Delhi High Court held as under :
Reassessment condition precedent application of mind by assessing officer to materials prior to forming reason to believe income has escaped assessment - No independent application of mind to information received from Directorate of Investigation and no prima facie opinion formed- reassessment order invalid 3.4. In the case of Sarthak Securities Co. (P) Ltd., 329 ITR 110 (Del.), the Hon’ble Delhi High Court held as under :
No independent application of mind by the Assessing officer but acting under information from Inv. Wing - Notice U/s. 147 to be quashed 3.5. The assessee also submitted that assessment is barred by time. The assessee further submitted that approval under section 151 have been granted in a most mechanical manner without applying independent mind by the Pr.
38 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. Commissioner of Income Tax. He has submitted that Pr. Commissioner of Income Tax has recorded in the approval as under :
“Form for recording the reasons for initiating proceedings u/s 147 and for obtaining the approval of the Ad CIT/CIT/CBDT M/s. Ganesh Ganga Investment 1. Name and address of the P. Ltd., A-52, Top assessee Floor Street No.l, Guru Nanak Pura, Laxmi Nagar, Delhi 110092 2. PAN AAACG2710J 3. Status Company 4. Ward/Circle Ward-10(1) 5. Asstt. Year in respect of which it 2010-11. is proposed to issue notice u/s 148 6. The quantum of income which has Rs.2,45,00,000/- escaped assessment 7. Whether the provisions of section 147(b) 147(a) or 147(b) are applicable or both the sections are applicable.
Whether the assessment is proposed to be made for the first Yes time. If the reply is affirmative, 39 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. please state (a) Whether any voluntary Yes return has already been filed. (b) If so, the date of filing of 04.02.2011 return
If answer to item 8 is negative, please state (a) Income originally assessed NA Whether it is a case of under assessment, at lower rate, (b) NO assessment which has been made the subject of excessive relief or allowing excess loss/depreciation. Whether the provision of Sec. 150(1) are applicable. If the reply is in affirmative the relevant facts may be stated against Item No. 11 and 8 10. NO may also be brought out that the provisions of Sec. 150(2) would not stand in the way of initiating proceedings u/s. 147. 11. Reasons for the belief that the As per annexure. income has escaped assessment.
Sd/- H.K. Sharma Dated: 29.03.2017. ITO, Ward-10(1), New Delhi.
40 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi.
Whether the Addl. Commissioner of I. Tax is satisfied on the In view of the facts 12. reasons recorded by the ITO that notice u/s.148 to it is a fit case for the issue of be issued. notice u/s.148.
Whether the Pr. Commissioner of I. Yes I am satisfied Tax is satisfied on the reasons that it is a fit case recorded by the ITO that it is a fit for issue of notice case for the issue of notice u/s.148 of the I.T. u/s.148. Act, 1961.
Sd/-S.K. Mittal, Pr. Commissioner of I. Tax, New Delhi.”
3.6. This approval is not valid in Law because it would show that approval have been granted without application of mind. Learned Counsel for the Assessee relied upon Judgment of the Hon’ble Delhi High Court in the case of United Electrical Co. Pvt. Ltd., vs. Commissioner of Income Tax 258 ITR 317 in which approval by Addl. Commissioner of Income Tax under section 151 was given in the following terms – “Yes” I am satisfied that it is a fit case for issue of notice under section 148 of the I.T. Act.” The Hon’ble Delhi 41 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. High Court considering the similarly worded approval did not approve the same and held that “in the present case, there has been no application of mind by Addl. Commissioner of Income Tax before granting the approval.” The assessee also relied upon Judgment of Hon’ble Supreme Court in the case of Commissioner of Income Tax vs., S. Goyanka Lime & Chemical Ltd., [2015] 64 taxmann.com 313 (SC) approving the Judgment of Hon’ble Madhya Pradesh High Court in the case of Commissioner of Income Tax, Jabalpur vs., S. Goyanka Lime & Chemical Ltd., [2015] 56 taxmann.com 390 (M.P.) in which the Departmental SLP has been dismissed on the same reason because the Joint Commissioner of Income Tax recorded satisfaction in a mechanical manner and without application of mind. The assessee also relied upon Judgment of Hon’ble Madhya Pradesh High Court in the case of Arjun Singh vs., ADIT [2000] 246 ITR 363 (M.P.) in which also similarly worded sanction under section 148 was not found valid. The assessee also relied upon Judgment of Hon’ble Delhi High Court in the case of Pr. Commissioner of Income Tax vs., N.C. Cables Ltd., [2017] 88 taxmann.com 649 42 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. (Del.) in which also on similarly worded sanction, it was held that re-assessment was not valid. The assessee also submitted that since no right of cross-examination have been allowed to the statement of Shri Himanshu Verma, therefore, such statement cannot be read in evidence against the assessee. He has relied upon Judgment of Hon’ble Supreme Court in the case of M/s. Andaman Timber Industries vs., Commissioner of Central Excise, Kolkata-II reported in 281 CTR 241.
4. The Ld. CIT(A), however, did not accept the contention of assessee and confirmed the reopening of the assessment. The assessee also made submissions on merit to show that addition is wholly unjustified. However, the Ld. CIT(A) did not accept the contention of assessee and upheld the addition on merit as well. The appeal of assessee was accordingly dismissed.
5. The assessee in the present appeal challenged the reopening of the assessment under section 147/148 of the I.T. Act, 1961, on several grounds, addition of Rs.11.05 43 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. crores under section 68 of the I.T. Act and addition of Rs.22,10,000/- on account of commission.
We have heard the Learned Representatives of both the parties. Learned Counsel for the Assessee reiterated the submissions made before the authorities below and referred to reasons recorded in this case for reopening of the assessment, copy of which is filed at page-15 of the PB. PB- 29 is approval/sanction granted by the Pr. Commissioner of Income Tax, New Delhi. PB-6 is balance-sheet to show that in preceding assessment year the share capital was of Rs.3.01 crores and in assessment year in increased to Rs.14.06 crores. Thus, about Rs.11 crores have increased and this fact was also disclosed to the Revenue Department. Such details are filed in the return of income. No verification could be allowed in the garb of proceedings under section 148 of the Income Tax Act, 1961. The name of M/s. Management Services Pvt. Ltd., in the reason from whom alleged entry have been taken by the assessee do not figure in the appellate order because such party does not exist. M/s. Shubh Propbuild Pvt. Ltd., has been mentioned in the reasons 44 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. do not belong to Shri Himanshu Verma. In assessment order name of M/s. Management Services Pvt. Ltd., do not appear. PB-13 of the assessment order referred to the statement of Shri Himanshu Verma in which name of M/s. Shubh Propbuild Pvt. Ltd., does not appear. The A.O, therefore, recorded incorrect reasons and did not apply his mind to the material on record. The A.O. has not gone through the record and the balance Company do not belong to the assessee. The statement of Shri Himanshu Verma was not subjected to cross-examination on behalf of assessee, despite making a request to the A.O. [PB-19]. In the statement of Shri Himanshu Verma filed on record, no such companies have been mentioned, therefore, no adverse inference could be drawn against the assessee. The assessee did not receive any notice for production of the parties before A.O. There is no evidence on record of any payment of commission paid by assessee for arranging share capital. Learned Counsel for the Assessee relied upon Order of the ITAT, Delhi Bench in the case of Pioneer Town Planners Pvt. Ltd., vs. DCIT ITA.No.132/Del./2018 Dated 06.08.2018 in which in similar 45 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. circumstances the re-assessment have been quashed which case also relates to entry provided by Shri Himanshu Verma. Learned Counsel for the Assessee submitted that the A.O. issued notices to all the parties under section 133(6) of the I.T. Act. In response to the same, 26 parties filed reply supported by documentary evidences to prove genuine share application money have been received. The A.O. did not take help of any handwriting export before forming any opinion. If replies were not in order, assessee should have been confronted with the material so that assessee could rebut the same. Therefore, such fact could not be taken adversely against the assessee. The assessee never received notice Dated 11.12.2017 for production of the parties for examination. In reasons 06 parties are mentioned which belong to Shri Himanshu Verma, but, in his statement he says 08 parties, but, the A.O. made addition for 38 parties. A.O. made the addition only on the statement of Shri Himanshu Verma, but, the parties did not belong to him. Learned Counsel for the Assessee submitted that since approval is not in accordance with Law, therefore, reopening 46 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. of the assessment is bad in Law and relied upon the same Judgments as were relied upon before Ld. CIT(A). He has submitted that A.O. did not apply his mind to the reasons and recorded incorrect facts and approval is also given on incorrect facts. The initiation and approval on the basis of wrong facts is not legally valid. He has relied upon Judgment of Hon’ble Delhi High Court in the case of Commissioner of Income Tax vs., Kamdhenu Steel & Alloys Ltd., 248 CTR 33 and other decisions as was relied upon before the authorities below. The amount received from 30 companies is Rs.8.13 crores only out of total amount of Rs.11.05 crores. Therefore, there is no other material on record to justify the addition. He has submitted that A.O. cannot ask to explain source of the source. Learned Counsel for the Assessee, therefore, submitted that reopening of the assessment is invalid and no addition could be made against the assessee even on merits.
The Ld. D.R. on the other hand relied upon the Orders of the authorities below and submitted that A.O. dealt with the objections of the assessee, but, for re-assessment proceedings no manner is provided as to how sanction is to 47 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. be granted. A.O. recorded details in the reasons on which Pr. Commissioner of Income Tax was satisfied. Therefore, reopening of the assessment is valid because information was received from Investigation Wing that assessee has received accommodation entries. The name of assessee was appearing. Sufficiency of reasons is not required at this stage of formation of re-assessment proceedings. The A.O. cannot do any roving enquiry at initial stage. The assessee failed to prove creditworthiness of the Investor Companies as they were having meagre income. The assessee did not prove genuineness of the transaction in the matter. The A.O. made enquiry from Investors and assessee did not produce parties before A.O. Even a premium have been charged for allotment of shares for which no reasons have been explained. The companies are having meagre income only. Apart from statement of Shri Himanshu Verma, there is enough material to justify the addition on merit. The assessee also did not prove identity and creditworthiness of the Investors even if no cross-examination to the statement of Shri Himanshu Verma have been allowed. The Ld. D.R. relied upon Judgment of 48 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. Hon’ble Supreme Court in the case of Raymond Woollen Mills 236 ITR 34 (SC). He has submitted that information is prima facie relevant and there is sufficient material on record to justify the initiation of re-assessment proceedings. The assessee failed to prove that no notice Dated 11.12.2017 have been received. The Ld. D.R. relied upon the following decisions. 1. PCIT vs., Paramount Communication (P.) Ltd., 2017- TIOL-253-SC-IT. 2. PCIT vs., Paramount Communication (P.) Ltd., [2017] 392 ITR 444 (Del.) (HC) 3. Aradhna Estate (P.) Ltd., vs. DCIT [2018] 91 taxmann.com 119 (Gujarat) (HC). 4. Pushpak Bullion (P.) Ltd., vs. DCIT [2017] 85 taxmann.com 84 (Gujarat) (HC). 5. Ankit Financial Services Ltd., vs. DCIT [2017] 78 taxmann.com 58 (Gujarat) (HC). 6. Aaspas Multimedia Ltd., vs. DCIT [2017] 83 taxmann.com 82 (Gujarat) (HC). 7. Ankit Agrochem (P.) Ltd., vs. JCIT [2018] 89 taxmann.com 45 (Rajasthan) (HC).
8. Yogendrakumar Gupta vs., ITO [2014] 227 Taxman 374 (SC).
49 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. 8. We have considered the rival submissions. It is well settled Law that validity of re-assessment proceedings is to be examined with reference to the reasons recorded for reopening of the assessment. The Counsel for Assessee has filed copy of the reasons recorded for reopening of the assessment at Page-15 of the Paper Book which reads as under :
“M/s. Ganesh Ganga Investments Pvt. Ltd., PAN AAACG2710J A.Y. 2010-11 The assessee filed return of income for the A.Y. 2010-11 on 04.02.2011 declaring loss of Rs.(-) 14,162/-. The return was processed u/s 143(1).
Information was forwarded to this office through the Addl.CIT, Range-10, New Delhi that search & seizure action was conducted by Inv. Wing at the office of Sh. Himanshu Verma where various incriminating documents/materials were seized during the course of search. During the post search investigation and perusal of seized documents it was observed that Sh.
50 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. Himanshu Verma was engaged in the business of providing accommodation-' entries by providing cheques/PO/DD in lieu of cash to a large number of beneficiary companies thorough various paper and dummy companies floated and controlled by them. It was also evidently established by the Investigation Wing that Sh Himanshu Verma is known entry providers and is the actual controller of more than 100 companies/proprietary firms/partnership firms. They control these entities through various persons by appointing them as directors/partners/proprietors apart from nominating them as authorized signatories for maintaining the bank accounts of these entities but in fact all these persons act only as their stooges. The cash received from the recipient parties for providing the accommodation entries was first deposited in the accounts of these dummy firms/companies in the disguise of the cash received against the bogus sales, duly shown in the books of accounts. From there, this cash was transferred to the different paper companies 51 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. floated by Sh. Himanshu Verma through a complex trail of transactions, so as to hide the actual sources of funds of the last set of recipient companies of Sh. Himanshu Verma In this way, the reserve & surpluses and the capital account of a specific set of companies are enhanced with the help of the unexplained cash received by Himanshu Verma, which is routed to these companies through their dummy firm/companies. Once the funds of these companies have been enhanced sufficiently, accommodation entries through RTGS/ Cheque in the shape of the share capital, capital gains or loans as per the specific requirement of the recipient clients were provided to them in lieu of the cash received from them. In this way, the chain for providing an accommodation entry gets completed.
It is noticed from the list of entries that the assessee M/s Ganesh Ganga Investment P. Ltd. has 52 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. taken following accommodation entries during the financial year 2009-10 :-
S.No. Amount Conduit companies through which cheque issued. 1. 4000000 Shubh Propbuild P Ltd., 2. 4000000 Jaguar Softech P. Ltd., 3. 4000000 Join Fashion P. Ltd., 4. 4500000 Management Services P. Ltd., 5. 4000000 Greenvision Construction P. Ltd., 6. 4000000 USK Exim P. Ltd., TOTAL 2,45,00,000/- On the basis of the reports received from the Investigation Wing, I have downloaded the return from the ITD portal and verified the records and it is clear that the assessee company has not disclosed fully and truly all material facts necessary for its assessment for the assessment year under consideration as it emerges that transactions shown in the return are not genuine. Apart from the above the assessee company is not doing any real business and keeping in view the huge investments, disallowances u/s 14A read with rule 8D also applicable in the case. The statement given by Shri Himanshu Verma also establishes the link with the self-confessed "accommodation entry providers", 53 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. whose business is to help assessees bring back their unaccounted money into their books of account. Thus, there is a direct link between the information/available with the department and the income escaping assessment.
I have, therefore, reasons to believe that income to the extent of Rs.2,45,00,000/- has escaped assessment relevant to A.Y.2010-11. Thus, the same is to be brought to tax under section 147/148 of the I.T. Act 1961.
Moreover, as the case pertains to a period beyond four years from the end of relevant assessment year, for issuing the notice u/s 148, necessary approval / sanction may kindly be accorded by the Pr. Commissioner of Income Tax, Delhi-4, New Delhi in view of the amended provision of section 151 w.e.f 01.06.2015.
Sd/- H.K. Sharma, Dated : 27.03.2017. ITO, Ward-10(1), New Delhi.”
54 ITA.Nos.3869 & 3870/Del./2018 M/s. Madhu Apartment Private Limited, Delhi. 8.1. PB-29 is the sanction granted by Pr. Commissioner of Income Tax for reopening of the assessment in which it is mentioned as under :
Whether the Pr. Commissioner of I. Yes I am satisfied Tax is satisfied on the reasons that it is a fit case 13. recorded by the ITO that it is a fit for issue of notice case for the issue of notice u/s.148 of the I.T. u/s.148. Act, 1961.