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Facts
The assessee, Tipsy Financial and Management Services Pvt. Ltd., was identified as a beneficiary of an accommodation entry syndicate, having received Rs. 50,00,000/- in AY 2011-12. Based on this information, the Assessing Officer (AO) initiated reassessment proceedings under Section 147/148 of the Income Tax Act beyond four years from the relevant assessment year. However, the AO's 'reasons to believe' erroneously stated that the assessee had not filed a return of income, whereas an original assessment for AY 2009-10 (as noted by the CIT(A)) was already completed under Section 143(3)/153C.
Held
Both the CIT(A) and the ITAT found that the AO's initiation of reassessment proceedings was invalid. The AO failed to meet the jurisdictional requirements of the first proviso to Section 147 for reopening assessments beyond four years, specifically by basing the action on an incorrect premise (non-filing of return) and failing to record satisfaction that the assessee did not disclose full and true material facts necessary for assessment. Consequently, the reassessment was annulled.
Key Issues
Whether reassessment proceedings initiated under Section 147/148 of the Income Tax Act beyond four years from the end of the relevant assessment year are valid when based on an incorrect premise and without recording satisfaction of the assessee's failure to disclose material facts.
Sections Cited
147, 148, 143(3), 153C, 151, 139, 142, 292B
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Income Tax Appellate Tribunal, DELHI BENCH “C”, NEW DELHI
Before: SHRI SHAMIM YAHYA, & SHRI SUDHIR PAREEK
ORDER This appeal filed by the Revenue is directed against the orders dated 08.03.2021 of the Ld. CIT(A)-26, New Delhi relating to assessment year 2011-12.
The grounds raised in assessment year 2011-12 read as under :-
The Ld. CIT(A) has erred in facts consideration that the AO has neither spelt out the correct facts about the filing the return of income nor he was able to fulfil the conditions as specified by proviso to Section 147 of the Act. Since, there is no satisfaction recorded by the AO that there is any failure on the part of appellant in disclosing full and true all material facts, the condition stipulated under Section 147 of the Act to re-open the assessment beyond four years is not satisfied.
2. The Ld. CIT(A) has erred in facts consideration that AO has initiated the reassessment proceedings under Section 147 of the Act on the basis of wrong premise, the subsequent assessment proceedings also become invalid in the eyes of law.
3. The Ld. CIT(A) has erred in law and on facts that the AO has wrongly initiated reassessment proceedings under Section 147 of the Act, hence the re-assessment proceedings are held to be invalid and therefore, annulled.
(a) The Ld. Commissioner of Income Tax (Appeals) is erroneous and not tenable in law and on facts.
(b) The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal.
The brief facts of the case are that an information was received from the Asstt. Director of Income Tax (Investigation), Unit 2(2), New Delhi vide letter dated 18.7.2016 which was passed on to the ITO, Ward 25(3), New Delhi. After verification from the record and recording satisfaction in writing with approval of Pr. CIT-09, New Delhi, the ITO Ward 25(3), New Delhi issued notice under Section 148 of the Act. The reason recorded for issue notice under Section 148 of the Act were as under:-
"An information has been received from the investigation wing, Delhi that Shri Mukesh Kumar and Shri Deepak Aggarwal are kingpin of a syndicate who form, control and manage large number of non-descript corporate and non-corporate entities through dubious means in lieu of unaccounted cash taken from them.
After the study of documents that were seized during the search and seizure operations carried out at their premises, a clear inference has been drawn that they are into the business of providing accommodation entries as entry operators engaged in running of several bogus/paper entities in the name of either non-existent persons or persons with no means. The document clearly reveal that the identity of a number of beneficiaries who introduced their own unaccounted money into their books with the help of Shri Mukesh Kumar and Shri Deepak Aggarwal whose banking accounts were used to give it a colour of legitimate banking transactions. In return for services provided by the entry operators, these beneficiaries paid commission to the tune of 0.5% to 2%.
One of the beneficiary company happen to be assessed with the undersigned. Its name is M/s Tipsy Finance and Management Services Pvt. Ltd. (PAN: AABCT3545K) which has received Rs.50,00,000/- on 27.04.2010 from M/s I-Tech Insurance Broker Pvt. Ltd. but did not file its Return of Income for the AY 2011-12 as it has been found out from the ITD system. The latter is one of the companies run and controlled by Mr. Deepak Aggarwal and Shri Mukesh Kumar engaged in providing accommodation entries.
It is well settled that in order to discharge the onus, the assessee must prove the following:
The identity of the creditor, The capacity of the creditor to advance money and The genuineness of the transaction.
As the facts are within the knowledge of the assessee. Mere production of PAN details or saying that the transaction was done through banking channel are not sufficient to prove the above three factum. Also, the three factum of the transaction is not established by merely showing the transaction was through banking channel. Therefore, it is obvious that the transaction is not genuine.
In view of the above, I have reason to believe that income chargeable to tax which has escaped assessment is above one lakh rupees for AY 2011-12. The same needs to be brought under the ambit of taxation and action under Section 147/148 of the IT Act is being initiated. Moreover, as the case pertains to a period within 6 years but beyond 4 years from the end of the relevant assessment year, necessary sanction from the Pr. CIT - 9, New Delhi in view of amended provision of Section 151 of the I.T. Act, 1961 is being obtained separately."
3.1 In response to the notice, assessee submitted his reply, which was not acceptable by the AO, hence, assessment was framed under Section 147/143(3)/153C of the Act at the total income of Rs.2,34,46,230/- vide order dated 28.12.2018. Against the said action of the AO, Assessee, appealed before the Ld. CIT(A) who vide his impugned order has partly allowed the appeal of the assessee and quashed the reopening by observing as under:-
"8. From the reasons recorded, as above, it is clear that the AO has initiated the reassessment proceedings under Section 147 of the Act on the basis of the fact that the return of income for A.Y. 2009-10 was not filed by the appellant. This fact has been clearly spelt out by AO in Para 3, of the assessment order where the reasons for reopening had been reproduced. It is further stated by AO that though the re-assessment proceedings under consideration pertains to period beyond four years but had not mentioned the status of assessment. However, the perusal of submissions made by the appellant and assessment records reveal that the AO has taken a wrong basis for re-opening of assessment proceedings in the case of the appellant. The appellant has enclosed with its submissions the assessment order passed under Section 143(3)/153C of the Act dated 21.12.2011 for A.Y. 2009-10. As per the reply of the appellant made in response to these proceedings under Section 143(3)/153C, necessary details, submissions relating to these transactions were called by AO, which were placed on records. Thus, the assessment proceedings were completed by Section 143(3) of the Act after examining the details and submissions filed by appellant on this issue. In such situation, when the original assessment has been completed under Section 143(3) of the Act and period of reopening is beyond four years from the relevant assessment year, the first proviso to Section 147 of the Act is clearly applicable. The said proviso is reproduced as under:-
Provided that where an assessment under sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of 4 years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.
The reading of the aforesaid proviso clearly says that no action shall be taken under Section 147 of the Act after the expiry of four years unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. In the case of the appellant, AO has defaulted on both the counts. Firstly, he has taken the wrong premise that the return of income has not been filed by the appellant. and secondly, he has failed to mention that first proviso to Section 147 of the Act is applicable in the case of appellant apart from being failed to establish that there were failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the year under consideration. Hon'ble Kerala High Court in the case Parthas Info Park (P) Ltd. Vs. ACIT 396 ITR 682, has held that re-assessment proceedings initiated against the assessee on a wrong premise, is unsustainable. It is further held by Hon'ble Court that it is necessary on the part of AO to show that there was any non-disclosure of full and true material facts that were necessary for the assessment by the AO, to justify the invocation of the first proviso to Section 147, while issuing notice under Section 148 to the assessee. Hon'ble Jurisdictional High Court, in the case of Avtec Ltd Vs, DCIT 395 ITR 434, has held that the reasons recorded by the AO, should, where the reopening under Section 147 of the Act is after expiry of four years from the end of the financial year, specifically state in what manner there was a failure by the assessee to make a full and true disclosure of material facts and that will have to be preceded by spelling out the tangible material that laid the AO to come to that conclusion. In the judgment of Hon'ble Jurisdictional Delhi High Court in the case of Bharti Infratel Ltd. v. Deputy Commissioner of Income-tax [2019] 101 Taxmann.com 285 (Delhi) has held that:
when the proviso applies, the Assessing Officer must satisfy himself and state that there has been failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment or another jurisdictional preconditions. In absence of failure or lapse to disclose fully and truly all material facts or one of the pre-conditions, re-opening is impermissible and barred under the statute. In such cases, it does not matter whether the Assessing Officer has applied his mind to the material facts stated, but had failed to draw legal or other factual inferences.
9.1 In the case of the appellant, as is evident from the reasons recorded reproduced in Para 3 of the assessment order and as reproduced above, the AO has neither spelt out the correct facts about the filing the return of income nor he was able to fulfill the conditions as specified by proviso to Section 147 of the Act. Since there is no satisfaction recorded by the AO that there is any failure on the part of appellant in disclosing full and true all material facts, the condition stipulated under Section 147 of the Act to re-open the assessment beyond four years is not satisfied. All the case has been built up by the AO on the wrong foundation in the satisfaction note forming the "Reasons to believe" and not recording the satisfaction that there was any failure on the part of the appellant to disclose fully and truly material facts necessary for its assessment. The mistake committed by AO raises the jurisdictional issue and this mistake is not curable under Section 292B of the Income Tax Act, 1961. Once the AO has initiated the re-assessment proceedings under Section 147 of the Act on the basis of wrong premise, the subsequent assessment proceedings also become invalid in the eyes of law. It is, therefore, held that the AO has wrongly initiated the re-assessment proceedings under Section 147 of the Act, hence, the reassessment proceedings are held to be invalid and therefore, annulled. The relevant grounds taken by appellant are allowed.
Against the above findings of the Ld. CIT(A), Revenue is in appeal before us.5. We have heard both the parties and perused the records. Ld. DR relied upon the order of the AO. Per contra, ld. AR for the assessee submitted that Ld. CIT(A) has passed a reasonable order which is quite appropriate and need not be interfered. We have carefully considered the submissions. It is evident from the findings of the Ld. CIT(A) who has observed that from the reasons recorded, the AO has neither spelt out the correct facts about the filing the return of income nor he was able to fulfill the conditions as specified by provision to Section 147 of the Act. There is no satisfaction recorded by the AO that there is any failure on the part of the assessee in disclosing full and true all material facts, the condition stipulated under Section 147 of the Act reopen the assessment beyond four years is not satisfied. Accordingly, we do not find any infirmity in the order of the Ld. CIT(A) on this issue, hence, we uphold the same and reject the grounds raised by the Revenue by dismissing the appeal of the Revenue.