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Income Tax Appellate Tribunal, CAMP BENCH AT JALANDHAR
Before: Sh. N. K. Saini, Hon’ble & Sh. Ravish Sood
IN THE INCOME TAX APPELLATE TRIBUNAL CAMP BENCH AT JALANDHAR Before Sh. N. K. Saini, Hon’ble Vice President and Sh. Ravish Sood, Judicial Member ITA No.181/Asr./2017 : Asstt. Year : 2008-09 M/s Holy Faith International Vs Deputy Commissioner of Income Tax, Pvt. Ltd., MBD House, Central Circle-II, Railway Road, Jalandhar Jalandhar (APPELLANT) (RESPONDENT) PAN No. AAACH6111J Assessee by : Sh. Sudhir Sehgal, Adv. Revenue by : Sh. Bhawani Shankar, DR Date of Hearing : 07.01.2019 Date of Pronouncement : 15.01.2019 ORDER Per N. K. Saini, Vice President: This is an appeal by the assessee against the order dated 20.03.2017 of ld. CIT(A)-I, Jalandhar. 2. Following grounds have been raised in this appeal: “1. That the Worthy Commissioner of Income Tax (A)-1, Jalandhar has erred in dismissing the appeal filed by the assessee. 2. That the Ld. CIT(A) has erred in confirming the contention of the Assessing Officer in reopening the case u/s 148 of the Income Tax Act and, thus, framing of assessment u/s 147 r.w.s.143(3)/153C at an income of Rs. 4,95,13,441/- against the returned income of Rs. 4,63,33,441/-. 3. That the Ld. CIT(A) has erred in not considering that there was no reason to believe that the income of the
ITA No. 181/Asr./2017 2 Holy Faith International Pvt. Ltd. assessee has escaped and there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment and our objections as filed before the Assessing Officer have not been considered properly.
Notwithstanding the above said facts, it is submitted that the Ld. CIT(A) has erred in confirming the addition as made by the Assessing Officer on account of so called bogus unsecured loan in the name of M/s Nazar Impex Pvt. Ltd., specially, when the confirmation from the said party had been furnished.
That the Ld. CIT (A) has erred in not considering that the reliance by the Assessing Officer on the statement of Sh. Sanjay Chaudhary at the back of assessee was not proper without giving any opportunity for cross examination and which is against the principles of natural justice.
That the Ld.CIT(A) has erred in not considering and confirming the contention of the Assessing Officer in not acceding the assessee’s request to summon Sh. Sanjay Chaudhary u/s 131 and, as such, no addition could be made without acceding to the request of the assessee.
That the Worthy CIT (A) in para 16 having agreed that the Assessing Officer did not provide any opportunity to the assessee to cross-examine Sh. Sanjay Chaudhary and still confirmed the addition, which is against the principles of natural justice as held in the case of M/s Andeman Timber Industries as reported 127 DTR 141 in the case of Kishinchand Chellaram as reported in 125 ITR 713.
That the addition as made by the Assessing Officer has been withheld/confirmed by the Ld. CIT(A) against the facts and circumstances of the case and submission filed during the course of assessment proceedings before the
ITA No. 181/Asr./2017 3 Holy Faith International Pvt. Ltd. Assessing Officer and during the course of Appellate proceedings have not been considered properly.
That the Appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.”
Vide ground nos. 1 to 3, the assessee challenged the jurisdiction of the AO in reopening the case u/s 148 r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act).
Facts of the case in brief are that the assessee filed its original return of income on 30.09.2008 declaring an income of Rs.4,63,33,441/-. Thereafter, a search u/s 132 of the Act was carried out on assesse’s group on 22.01.2009. In response to the notice u/s 153C of the Act, the assessee filed its return of income declaring the same income of Rs.4,63,33,441/- on 06.02.2010. The AO completed the assessment u/s 153C of the Act vide order dated 29.12.2010 at an income of Rs.4,64,33,441/-. Subsequently, a search operation u/s 132 of the Act was carried out by Directorate of Income Tax(Investigation), Mumbai on 03.10.2013 at Rajendra Jain Group, Sanjay Choudhary Group and Dharmichand Jain Group of Mumbai. In view of certain evidences gathered during the search, the case of the assessee was reopened u/s 147/148 of the Act and a notice u/s 148 of the Act was issued to the assessee. In response to which, the assessee filed the return of income on 24.04.2015 declaring an income of Rs.4,63,33,441/-. The AO, however, completed the assessment at an income of Rs.4,95,13,441/- by making the addition of Rs.31,50,000/- on account of loan received from M/s Nazar Impex Pvt. Ltd. and
ITA No. 181/Asr./2017 4 Holy Faith International Pvt. Ltd. Rs.30,000/- on account of disallowance which was earlier made u/s 153C of the Act at Rs.1,00,000/- but was restricted by the ld. CIT(A) to Rs.30,000/-.
Being aggrieved the assessee carried the matter to the ld. CIT(A) and challenged the jurisdiction of the AO in reopening the assessment by stating that there was no reason to believe that the income of the assessee had escaped assessment and that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. It was also stated that the objections were filed before the AO which had not been considered properly and that the addition made by the AO on account of loan in the name of M/s Nazar Impex Pvt. Ltd. was not called for especially when the confirmation from the said party had been furnished and that the statement of Sh. Sanjay Choudhary was recorded at the back of assessee by the AO without giving any opportunity of cross examination. Therefore, the addition made was against the principles of natural justice. It was further submitted as under: “(i) The Ld. AO has applied his mind while framing the original assessment order u/s 153C and no discrepancy with regard to the unsecured loan was noticed.
(ii) Reasons recorded by the Ld. AO is merely based on the information received from the investigation wing of the department without any independent application of mind.
(iii) In the statement of Sanjay Chaudhary, he has only discussed the bogus entries given by M/s Vardhman
ITA No. 181/Asr./2017 5 Holy Faith International Pvt. Ltd. Jewels, M/s Ganesh Oiam and Timil Enterprises and not Nazar Impex Pvt. Ltd.
(iv) Sanjay Chaudhary has also never specifically pointed out the name of the assessee with regard to the bogus entries.
(v) The conditions laid down in first proviso to section 147 is not satisfied with regard to reopening the case beyond 4 years.
Now, the point wise explanation of the above points are provided as under:
1.4 It is submitted that the case of the assessee has already been assessed u/s 153C/143(3) of the Act and the then Ld. AO has applied his mind while framing his assessment order and the said figure of the unsecured loan was not left unnoticed by the then AO since it firstly appears in the Balance Sheet' under the head ‘Sundries’, and secondly there is a clear mention of the same in the Tax Audit Report of the assessee. Thus, the statement made by the Ld. AO that there is a failure on the part of the assessee to disclose fully and truly all the material facts necessary for completion of the assessment does not hold any basis.
1.5 Thus, it is clear that the Ld. AO has not actually applied his mind while issuing notice u/s 147 and the same is also evident from the reasons recorded by the Ld.AO, which are given in Point 2 of the re-assessment order. Herein the Ld. AO has merely discussed the search carried on the Sanjay Chaudhary Group and alleged that Sanjay Chaudhary himself has admitted that his concern NIPL is providing accommodation entries in the nature of bogus loans when neither there is any mention of NIPL giving the bogus unsecured loan entries nor there was any mention of the assessee availing bogus loan. Thus, the ‘reasons to believe’ are only the misguided contention of the Ld.AO which were
ITA No. 181/Asr./2017 6 Holy Faith International Pvt. Ltd. concluded without applying any mind and hastily serving of the notice near the time barred dates. It may be mentioned here that the AO has issued the notice u/s 148 on 23.03.2015 and the said action would have been time barred by 31.03.2015.
1.6 Moreover , Sanjay Chaudhary Group had many concerns under it and it is not necessary that every entry provided by every concern under it is bogus as no investigation with respect to the same has ever been carried out either by the investigation wing or the income tax department itself. Moreover, the concerned person has never pointed out the name of the assessee while being investigated by the department, thus, it is merely a rough assumption to state that if the name of the assessee is appearing in the books of NIPL then, the entry provided by the NIPL is bogus when no claim has been made by the concerned person in his statement. It is also submitted that in the course of the re-assessment proceedings the assessee has even requested the copy of the statement of Sanjay Chaudhary recorded by the Investigation wing vide letter dated 05.05.2015 which is received by the assessee and the copy of the same is enclosed in the Paper book. However, it is to be noted here that the said copy is incomplete and incoherent as it lacks some of the important pages of the statement, thus, from the same it is very much clear that the Ld. AO himself never had the full statement in his possession which again goes on to prove that it was impossible for the Ld, AO to process the relevant data as the data available with himself is misplaced.
1.7 The impetuous nature of service of notice u/s 148 and order u/s 147 is also clear from the fact that the assessee was never allowed to cross examine Sanjay Chaudhary even when the assessee had asked the Ld. AO during the reassessment proceedings to do the same. Thus, the case of the assessee has been reopened merely on the basis of the information received from the Investigation wing and no independent application of
ITA No. 181/Asr./2017 7 Holy Faith International Pvt. Ltd. mind has been made by the Ld. AO because the Ld. AO on one hand is alleging that the information were concealed by the assessee at the time of the original assessment proceedings and on the other hand he is admitting that the information was “prima facie put under the head 'Sundries’ in the current liabilities” and the same had a clear mention in the Tax Audit Report. Thus, from the same it is clear that the Ld. AO have only relied on the information of the investigation wing and have neither looked into the facts and circumstances of the case or even on the documents filed in the reassessment proceedings. Thus, reopening without application of mind is invalid and wrong. Reliance in this regard is placed on the following judgments:- • SHEO NATH SINGH vs. APPELLATE ASSISTANT COMMISSIONER OF INCOME TAX (SC) 82 ITR 0147-There also, the report submitted by the officer to the CIT and the latter's orders thereon were produced. In his report, the ITO referred to some communications received by him from the CIT, Bihar and Orissa, from which it appeared that certain creditors of the assessee were mere name- lenders and the loan transactions were bogus and, therefore, proper investigation regarding the loans was necessary. It was observed that the ITO had not set out any reason for coming to the conclusion that it was a fit case for issuing a notice under s. 148 of the IT Act, 1961. • CIT Vs SFIL Stock Broking Ltd. [2010] 325 ITR 285 (Delhi) – Reassessment – Reason to believe – Reopening on directions of superior officers so called reasons recorded by the AO for reopening assessee’s assessment comprises mere information received from Dy. Director of IT(Inv.) followed by directions of the very same officer and the Addl. CIT to initiate proceedings under s. 147 – These cannot be the reasons for proceeding under s. 147/148 – From the so-called reasons it is not at
ITA No. 181/Asr./2017 8 Holy Faith International Pvt. Ltd. all discernible as to whether the AO has applied his mind to the information and independently arrived at a belief on the basis of the material before him that income had escaped assessment – Proceedings under s. 147/148 rightly quashed by Tribunal – No substantial question of law arises for consideration. • ITO Vs Narnaudia Financial Services Pvt. Ltd. in ITA No. 4094/Del/2009, ITAT Delhi- The reopening was done merely on the basis of information received from investigation wing. As per ratio emanating from above said Jurisdictional High Court decision, on the facts and circumstances o the case reopening is not valid. Hence we hold that the reopening was not valid. • Shri Chunnilal Prajapati Vs Income-tax Officer-II, ITA Nos. 290 to 293/Luc/2010, ITAT Lucknow.” 6. It was also stated that the assessment framed beyond four years was barred by limitation. On merit, it was stated that the assessee during the course of assessment proceedings proved the identity and creditworthiness of the creditor alongwith genuineness of the transaction. Therefore, the addition made was not justified. The reliance was placed on the following case laws: � CIT Vs Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal.) � ITO Vs Suresh Kalmadi (1988) 32 TTJ (Pune) TM 300 � Paul Mathews and Sons Vs CIT 263 ITR 101 (Ker.) � CIT Vs Khader Khan Son 300 ITR 157 (Madras) � Kishinchand Chellaram Vs CIT 125 ITR 0713 (SC) � Andaman Timber Industries Vs Commissioner of Central Excise 127 DTR 241 � Sh. Ashok Kumar Bhailal Vs ITO in ITA Nos. 562 & 591/Ahd.2015
ITA No. 181/Asr./2017 9 Holy Faith International Pvt. Ltd. 7. The ld. CIT(A) after considering the submissions of the assessee observed that the AO noted during the course of search on Sh. Sanjay Chaudhary Group that the said group was engaged in providing accommodation entries to different assessees for bogus unsecured loans and bogus purchases. Such an entry was also provided to the assessee by M/s Nazar Impex Pvt. Ltd., one of its group companies of Rs.31,50,000/-. On that basis, the AO reopened the assessment. He further observed that the amount received from M/s Nazar Impex Pvt. Ltd. was not shown under ‘unsecured loans’ in the balance sheet by the assessee but it was shown under the head “sundries” as a current liability, which clearly shows that it was not the intention of the assessee to fully and truly disclosed in its balance sheet, the so-called unsecured loans taken from M/s Nazar Impex Pvt. Ltd. He accordingly confirmed the addition made by the AO.
Now the assessee is in appeal. The ld. Counsel for the assessee submitted that earlier income of the assessee was assessed u/s 153C of the Act after a detailed scrutiny and an addition of Rs.1,00,000/- was made which was reduced by the ld. CIT(A) to Rs.30,000/- (a reference was made to page nos. 37 to 39 of the assessee’s compilation). It was further submitted that the reopening was done beyond four years but there was no failure on the part of the assessee to disclose fully and truly all materials facts necessary for the assessment. It was contended that a loan of Rs.31,50,000/- from M/s Nazar Impex Pvt. Ltd. was received through Sh. Ashok Kumar Malhotra, MD of the said company who had good relation
ITA No. 181/Asr./2017 10 Holy Faith International Pvt. Ltd. with the assessee, through banking channels and it was repaid back in the next year through normal banking channels. This fact was disclosed in the Tax Audit Repot furnished alongwith the original return of income (a reference was made to page no. 18 of the assessee’s compilation). It was further submitted that the AO made the scrutiny during the course of original assessment proceedings u/s 153C of the Act and the said amount was reflected in the balance sheet under the head “sundries” alongwith other figures which clearly proved that it was part and partial of the record of the department. It was further submitted that there was no search in the case of the assessee rather there was a survey operation and the statement of Sh. Sanjay Chaudhary recorded at the back of the assessee was never confronted to the assessee. Therefore, the reopening done by the AO only on the basis of information received from the Directorate of Income Tax without making an inquiry was not justified. The reliance was placed on the following case laws: � Sheo Nath Singh Vs ACIT 82 ITR 0147 (SC) � CIT Vs SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del.) � Pr. CIT Vs G. G. Pharma India Ltd. 384 ITR 147 (Del.) � Signature Hotels Pvt. Ltd. Vs ITO 338 ITR 51 (Del.) � ITO Vs Narnaudia Financial Services Pvt. Ltd. in ITA No. 4094/Del/2009 � Sh. Chunnilal Prajapati Vs ITO-II in ITA Nos.290 to 295/Luc/2010 � G. N. Shaw (Wine) (P) Ltd. Vs ITO 260 ITR 513 (Cal.) � Sun Pharmaceutical Industries Ltd. Vs DCIT 381 ITR 387 (Del.) � Shaf Broadcast Pvt. Ltd. Vs ACIT in ITA NO. 1819/Mum/2012 � Ashok Kumar Vs ACIT in ITA No. 825/Chd./2007
ITA No. 181/Asr./2017 11 Holy Faith International Pvt. Ltd. � Alfa Radiological Centre P. Ltd. Vs ITO 44 ITR 184 (Chd. Trib.)
In his rival submissions, the ld. CIT DR strongly supported the impugned order passed by the ld. CIT(A) and further submitted that M/s Nazar Impex Pvt. Ltd. was an entry provider, therefore, the entry taken by the assessee was a bogus entry and the assessment was rightly reopened by the AO.
We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is an admitted fact that the original assessment of the assessee was framed u/s 153C of the Act after making the deep scrutiny. In the original return, the assessee furnished the particulars of the loan received from M/s Nazar Impex Pvt. Ltd. in the Tax Audit Report which is evident from page no. 18 of the assessee’s paper book wherein the details of the loans or deposits received from various persons have been mentioned, so it cannot be said that the facts relating to the receipt of loan from M/s Nazar Impex Pvt. Ltd. was not available to the AO who made the assessment after making proper scrutiny. In the present case, the AO reopened the assessment by recording the following reasons: “The assessee had filed its original return of income on 30.09.2008 at returned income of Rs. 4,63,33,441/-. A search u/s 132 of the Income Tax Act, 1961 was carried out on the assessee’s group on 22.01.2009. In response to notice u/s 153C, the assessee filed its return of income declaring income of Rs. 4,63,33,441/- on 06.02.2010. Assessment was completed u/s 153C of the Income Tax Act, 1961 vide order dated 29.12.2010 at an assessed income of Rs. 4,64,33,441/-. -
ITA No. 181/Asr./2017 12 Holy Faith International Pvt. Ltd. 2. A search operation u/s 132 of the Income Tax Act, 1961 was carried out by Directorate of Income Tax (Investigation), 3rd Floor, Scindia House Ballard Estate, Mumbai on 03.10.2013 at Rajendra Jain Group, Sanjay Choudhary Group and Dharmichand Jain Group of Mumbai.
During the course of search operation, on the Sanjay Choudhary Group, it emerged that the group is engaged in providing accommodation entries to different assessees in the nature of bogus unsecured loans and bogus purchases. In his statement recorded on oath, Sh. Sanjay Choudhary has admitted that his concern M/s Nazar Impex Pvt. Ltd., bearing PAN AACCN3603R is providing accommodation entries in the nature of bogus loans.
M/s. Nazar Impex Pvt. Ltd., bearing PAN AACCN3603R has provided accommodation entry to M/s. Holy Faith International Pvt. Ltd. (the assessee) bearing PAN AAACH6111J of Rs. 31,50,000/- under the nature of loan during the financial year 2007-08 relevant to the assessment year 2008-09. This has been established in the course of the post search investigation of the seized books of accounts of the Sanjay Choudhary Group, in which M/s Nazar Impex Pvt. Ltd. is one of the concern.
In view of this information in my possession, I have reasons to believe that the assessee M/s Holy Faith International Pvt. Ltd. has concealed the fact regarding the amount of Rs. 31,50,000/- received from M/s Nazar Irnpex Pvt. Ltd. and has thereby not disclosed fully and truly all material facts necessary for the assessment of the relevant assessment year. The assessment folder has been examined and this entry has not been reflected.
In view of the discussion above, I have reasons to believe that income of Rs.31,50,000/- has escaped assessment with the meaning of section 147 of the income tax Act 1961 for the financial year 2007-08 relevant to the assessment year 2008-09.”
ITA No. 181/Asr./2017 13 Holy Faith International Pvt. Ltd. 11. From the above reasons recorded, it is clear that the reopening was done on this basis that a search operation u/s 132 of the Act was carried out by the Directorate of Income Tax(Investigation), Mumbai on 03.10.2013 at Rajendra Jain Group, Sanjay Choudhary Group and Dharmichand Jain Group of Mumbai, only on the basis of the above information, this case was reopened which is evident from para 5 of the aforesaid reasons recorded wherein the AO had clearly stated that the said information was in his possession and on that basis he had reasons to believe that the assessee had concealed the fact regarding the amount of Rs.31,50,000/- received from M/s Nazar Impex Pvt. Ltd. However, the said amount was considered as genuine earlier when the assessment was framed by the AO u/s 153C of the Act. Now question arises as to whether, on the basis of information received from the Investigation Wing, the completed assessment can be reopened.
On a similar issue the Hon’ble Delhi High Court in the case of Principal Commissioner of Income Tax-4 Vs G & G Pharma Ltd. 384 ITR 147 (supra) held as under: “The basic requirement of law for reopening an assessment is application of mind by the Assessing Officer, to the materials produced prior to reopening the assessment, to conclude that he has reason to believe that income has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not make an inherently defective reassessment order valid.” It has further been held as under: “Without forming a prima facie opinion, on the basis of such material, it was not possible for him to have simply
ITA No. 181/Asr./2017 14 Holy Faith International Pvt. Ltd. concluded that it was evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries. The basic jurisdictional requirement was application of mind by the Assessing Officer to the material produced before issuing the notice for reassessment. Without analysing and forming a prima facie opinion on the basis of material produced, it was not possible for the Assessing Officer to conclude that he had reason to believe that income had escaped assessment.”
Similarly, the Hon’ble Delhi High Court in the case of Signature Hotels Pvt. Ltd. Vs ITO and Anr. (2011) 338 ITR 51 (supra) held as under: “Section 147 of the Income-tax Act, 1961, is wide but not plenary. The Assessing Officer must have "reason to believe" that an income chargeable to tax has escaped assessment. This is mandatory and the "reasons to believe" are required to be recorded in writing by the Assessing Officer. Sufficiency of reasons is not a matter, which is to be decided by the writ court, but existence on belief is the subject-matter of the scrutiny. A notice under section 148 can be quashed if the "belief" is not bonafide, or one based on vague, irrelevant and non- specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded the reason. There should be a link between the reasons and the evidence/material available with the Assessing Officer. The "reasons to believe” would mean cause or justification of the Assessing Officer to believe that the income has escaped assessment and not that the Assessing Officer should have finally ascertained the fact by legal evidence or reached a conclusion, as is determined and decided in the assessment order, which is the final stage before the Assessing Officer. It has further been held that: “the reassessment proceedings were initiated on the basis of information received from the Director of Income-tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lakhs during financial year 2002-03 as stated in the annexure. According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of section 147 of the Act. There was no reference to any document or statement, except the
ITA No. 181/Asr./2017 15 Holy Faith International Pvt. Ltd. annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, S, had a paid-up capital of Rs. 90 lakhs and was incorporated on January 4, 1989, and was also allotted a permanent account number in September, 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to be quashed.”
In the present case also, the AO simply acted upon the information received from the Investigation Wing and did not apply his own mind. Therefore, the reopening u/s 147 by issuing the notice u/s 148 of the Act only on the basis of information received from the Investigation Wing was not valid. Accordingly, the reassessment framed by the AO is quashed.
In the result, the appeal of the assessee is allowed. (Order Pronounced in the Court on 15/01/2019)
Sd/- Sd/- (Ravish Sood) (N. K. Saini) JUDICIAL MEMBER VICE PRESIDENT Dated: 15/01/2019 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5.DR: ITAT ASSISTANT REGISTRAR