REGIS INDUSTRIES LIMITED,KOLKATA vs. I.T.O., WARD - 8(1), KOLKATA

The assessee has raised 19 grounds of appeal, however, at the time of hearing, the assessee pressed the legal issue raised in ground no.6 and 7 and ground no.10 to 16, which are on merit.

The facts in brief are that the assessee filed the return of income on 30.09.2009, declaring the total income of ₹35,316/-, which was processed u/s 143(1) of the Act. Thereafter the ld. AO reopened the case of the assessee u/s 147 of the Act by issuing notice u/s 148 of the Act on 29.07.2016, after receiving a letter dated 16.03.2016, from ITO (Inv.), unit-1, Kolkata, in which it was stated that assessee received money after huge cash was deposited in the individuals current account and proprietary concerns from which the assessee has received ₹3.64 crores. The assessee submitted the acknowledgement of ITR of the assessee on 04.08.2016. Thereafter the statutory notices along with notice u/s 142(1) of the Act and questionnaire were issued and duly served upon the assessee. The assessee submitted before the ld. AO from time-to-time various documents/evidences as called for by the ld. AO. The AO noted that as per the ITO(inv.) Unit-1, Kolkata, the assessee has received ₹3.64 crores from individual current accounts and or current accounts of proprietary concerns in which huge cash was deposited before transferring the money to the assessee company routed through from M/s Mapple Advisory Services Pvt. Ltd, M/s Zenith Management Pvt. Ltd, Jupiter Tradelink Pvt. & Others. Accordingly, The AO after examining the evidences called upon the assessee to furnish the details of shares sold during the instant financial year which were accordingly furnished by the assessee. The ld. AO noted that the assessee has sold quoted and unquoted equity shares of substantial amount and sales consideration was deposited into its bank account with IDBI bank during the F.Y. 2013-14. Thereafter the ld. AO gave the details of shares sold by the assessee aggregating to ₹11,55,75,000/-. Finally, on the basis of

In the appellate proceeding, the ld. CIT (A) dismissed the appeal of the assessee after calling for the remand report from the ld. AO which was duly furnished by the ld. AO and also confronted to the assessee for which the assessee duly replied which is available in the paper book page no. 114 to 117 of PB. The legal issue raised by the assessee is dismissed by the ld. CIT (A) by observing and holding as under:-

So far as the borrowed satisfaction is concerned the ld AR argued that the AO has not applied his mind to the information received and extracted the same as received taking the same to be gospel truth without any independent application of mind . The ld AR argued that the information received is just a starting point and thereafter the AO has to apply his mind to the same and find as to how the assessee has escaped the income based on the said information. The ld Counsel submitted that the AO has just noted the information received and then noted that the income has escaped to that extent. The ld AR contended that even the correct name of the bank was not known to the AO while recording the reasons and he mentioned ICICI Bank as stated by the ITO Inv Unit -1 in the letter to the AO. The ld. AR in defense of his arguments relied on the a series of decisions namely Commissioner of Income-tax vs. SFIL Stock Broking Ltd.[2010] 325 ITR 285 (Delhi) vide order dated 27-04-2010, Signature Hotels (P.) Ltd. vs. Income-tax Officer [2011] 338 ITR 51 (Delhi)[21-07-2011]. Assistant Commissioner of Income-tax, Circle, Khanna vs. Kisco Casting (P.) Ltd. [2013] 34 taxmann.com 37 (Chandigarh - Trib.)/[2014] 147 ITD 269 (Chandigarh - Trib.)/[2013] 152 TTJ 629 (Chandigarh - Trib.)[22-06-2012].The ld AR finally prayed that the re- opening of assessment by the AO is invalid and may kindly be quashed.

The ld. AR also argued that the approval of Pr. CIT for issuing notice u/s 148 of the Act was conveyed and communicated to the ITO vide letter No. PCIT/Kol-3/DCIT,Hqrs-3/Kol dated 29.03.2016 , whereas the notice u/s 148 of the Act was issued on 28.3.2016 by the AO. The ld. AR argued that though in the column no. 12 where the Pr. CIT accorded approval by stating that “considering the reasons recorded I am satisfied that it is a fit case for issue of notice u/s 148 of the Act” and stated the date of granting approval as 28.03.016 but the same cannot be treated as a valid approval when the letter of approval was dispatched to the ITO having jurisdiction on 29.3.2016 and acknowledged by the ITO on 29.3.2016. The ld. AR argued that Pr. CIT has granted approval in a mechanical manner and without application of mind and conveyed the same to the AO on 29.3.2016 whereas the AO issued the notice even before receiving the approval of the Pr CIT and therefore the notice issued is invalid and so is the re-opening and consequent order passed by the AO. In order to buttress his arguments, the ld. AR relied on the decision of Hon'ble

The ld. DR on the other hand relied on the orders of the authorities below submitting that the information received from the ITO (Inv.), Unit-1, Kolkata, was very clear and certain that assessee made huge transactions in ICICI bank in cash and therefore the case of the assessee was rightly reopened. The Ld. DR submitted that it is necessary that exact information has to be recorded in reasons to believe as it is just a starting point and actual transactions have to be dug out and ascertained during the course of reassessment proceedings. The ld. DR therefore prayed that the legal issue raised by the assessee may kindly be dismissed.

After perusal of the above reasons recorded, we note that the ld. AO noted in the reasons that on the basis of credible information received wherein it is reported that assessee has received Rs. 3,64 Cr after deposit of cash at source either in individual current account or proprietorship account maintained with ICICI Bank. Thereafter in second para the AO stated that it was further reported indicated pattern that aforesaid company was sold out or transferred to the beneficiaries and in the process the management/directors of the company had also been changed and investments in quoted and unquoted shares were sold against funds received by the assessee by depositing cash and thereafter in 3rd para stated that considering the above the income of the assessee escaped assessment. For the sake of ready reference the reasons recorded are extracted below:

A perusal of the above stated reasons reveals that the reopening was made after the AO received information from the ITO(Inv.), Unit-1 Kolkata vide letter dated 16.3.2016. In the said letter referred to the verification of STR No. 1000015473 in which it was found that the assessee received money to the tune of Rs. 3.64 Cr after deposit of cash in the individual current account or proprietorship account with ICICI Bank. Similar in the second para also the AO referred to the said information and then in third para formed the opinion. In our opinion there is no satisfaction recorded by the AO for formation of belief and the AO has done only reproduction of the information received and concluded on that basis. We note from the above that the AO has not applied his independent mind to the information received from ITO (Inv.), Kolkata. We observe that the information received was extracted in the reasons recorded as they were received even without verifying the same whether those were correct or not and the assessment was reopened u/s 147 of the Act. We also observe that there was total non-application of mind by the AO to the information received and he has only acted on the basis of borrowed satisfaction to reopen the assessment which is not permissible under the Act. In our opinion, the AO has to exercise powers as conferred upon him by section 147 r.w.s. 148 of the Act with great care and caution as by exercising the reassessment jurisdiction u/s. 147, the AO unsettles the already completed assessment putting the assessee to a huge inconvenience and harassment. In the present case, the AO has incorrectly reopened the assessment by not even verifying the facts that there was no such bank account of the assessee with ICICI Bank.

Even the reopening on the basis of such defective and wrong reasons is invalid and nullity. The case of the assessee find support from the decision of Hon’ble Delhi High Court in the case of DrAjit Gupta vs. ACIT(supra). Secondly in our opinion, the reason have to be read as were recorded by the AO and no substitution or addition or deletion are allowed at a later stage in the reasons as the AO by reopening the assessment is unsettling the already settled assessment of the assessee. In our opinion the AO is supposed to exercise utmost care and caution in the matter of exercising the jurisdiction us u/s 147 of the Act. We are fortified in our conclusion by the decision of Hon’ble

Considering the facts of the case and ratio laid down of above decisions, we are inclined to quash the reopening of assessment as well as consequent order passed u/s 147 of the Act as invalid and

Even on merit the case of the assessee is strong. The amounts have been received against sale of investments that were acquired in earlier year and duly disclosed in books of accounts and the returns of income. We note that the assessee in support of sale submitted copies of invoices, ledger of parties, bank statement highlighting receipt, names, addresses and PANs of the purchasers and their bank statements. There were no immediate cash deposits into their account. No defects have been found in the evidences adduced by the assessee. As such the assessee duly discharged its onus to prove the genuineness of the transactions. Moreover since the amount has been received against sale of investments, the purchase of which has been accepted and therefore , the amount received against sales cannot be doubted.The amount received against sale of investments have further been verified by the Ld. AO in course of remand proceedings wherein 25 out of 29 parties responded to the notices issued u/s133(6) and furnished necessary details and documents and there is no adverse finding by the Ld. AO.In remand proceedings, the bank deposits aggregating Rs. 4,86,82,949 assessed as unexplained money were duly explained with supporting documents including confirmations, Ledger Account, bank Statement, Certificate from Statutory Auditor certifying the cheques in hand as on 31.03.2009 and there is no adverse finding by the Ld. AO.The addition of Rs. 42,05,909/- on account of Unexplained cash in hand was for the reason that the Ld. AO missed to consider the cash withdrawals aggregating Rs. 48,80,000/- from IDBI bank. Furthermore, a cash flow statement duly certified by a Chartered Accountant was also filed in remand proceedings, certifying that the assessee had made cash withdrawal

In the result, the appeal of the assessee is allowed.