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Facts
The assessee's assessment for AY 2009-10 was reopened under Section 147/148 based on information about accommodation entries, leading to an addition of Rs. 2.85 crores under Section 68 for unexplained money from sale of shares. The CIT(A) dismissed the assessee's challenge to the reopening but deleted the addition on merits. The revenue appealed the deletion of the addition, while the assessee challenged the validity of the reopening under Rule 27 of ITAT Rules.
Held
The Tribunal condoned a 5-day delay in the revenue's appeal and first addressed the assessee's challenge. It found the reasons recorded for reopening the assessment under Section 147 to be vague and based on borrowed satisfaction, thereby quashing the reopening. Additionally, the Tribunal upheld the CIT(A)'s deletion of the addition on merits, finding that the assessee had provided sufficient evidence for the share sale transactions.
Key Issues
Whether the reopening of assessment under Section 147/148 was valid given the cryptic and vague reasons recorded; and whether the deletion of addition made under Section 68 by CIT(A) on merits was justified.
Sections Cited
147, 143(3), 148, 250, 68
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: Shri Rajesh Kumar, AM& Shri Sonjoy Sarma, JM]
ORDER Per Shri Rajesh Kumar, AM
The appeal filed by the revenue is against the order of Ld. CIT(A), Kolkata-20 dated 24.07.2024for AY 2009-10 passed u/s 250 of the Act arising out of assessment order passed u/s. 147/143(3)of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) by ACIT/DCIT, Central Circle-1(2), Kolkata dated 28.11.2016.
At the outset, we note that there is a delay in filing the appeal by the revenue by 5 days for which condonation petition was filed by the revenue explaining the reasons for delay to be on account of time taken in obtaining administrative approvals at the various stages in the hierarchy . Considering the reasons to be bonafide, we are inclined to condone the delay and admit the appeal for adjudication.
At the time hearing the ld counsel of the assessee brought to the notice of the bench the application filed by the assessee under Rule 27 of the ITAT Rules challenging the reopening of assessment u/s. 147 on the ground of being made on cryptic and vague reasons recorded. The ld AR submitted that where assessee has not filed any cross objection against the revenue appeal and therefore the assessee is within its lawful and legitimate rights to file the said application on the issue decided against him though the appeal is finally decided in favour of the assessee. The ld AR submitted that the ld CIT(A) dismissed the legal issue raised by the assessee but deleted the addition on merits. The ld AR submitted that Rule 27 of ITAT Rules provides an opportunity to the assessee/respondent where it has not filed any appeal or cross objections before the tribunal to support the order of CIT(A) on the ground decided against the assessee/respondent by the ld CIT(A). The ld AR relied on the decision of Sanjay Sawhney Vs PCIT(2020) 116 taxman 332 (Delhi) dated 18.05.2020 wherein it has been held rule 27 embodies a fundamental principal that a respondent who may not have been aggrieved by the final order of the lower authority or court and therefore has not filed any appeal or against the same, is entitled to defend such an order before the appellate form on all ground including the ground which has been decided against him or it by lower authority though final order is in its favour. Therefore the ld counsel prayed that the issue raised under rule 27 may be adjudicated. Whereas the revenue has challenged the deletion of addition by the Ld. CIT(A) on merit. Since the assessee has challenged the reopening of assessment as invalid, we are first inclined to decide the legal issue raised by the assessee under Rule 27 of ITAT Rules.
The facts in brief are that the assessee filed the return of income on 14.9.2009 declaring total income of Rs. 1,02,650/-.The case of the assessee was re-opened u/s 147 of the Act by issuing notice u/s 148 of the Act on 30.3.2016 after AO received information from ITO Inv. Unit -1 Kolkata that cash was deposited into a number of account and were used to provide accommodation entries. The assessee wrote to the AO on 5.4.2016 that return filed on 14.9.2009 may be treated as filed in response to notice u/s 148 of the Act. The AO thereafter provided the reasons recorded for re-opening a copy of which is available at page no. 151 of the paper book. The assessee replied to all the notices/questionnaires issued by the AO from time to time and finally an addition of Rs. 2,85,00,000/- was made to the income of the assessee by treating the money credited in the books of the assessee for sale of shares as unexplained u/s 68 of the Act on the ground that the money was layered 2 to 3 times before credited to the books of the assessee.
The Ld. CIT(A) upheld the reopening of assessment by observing and holding as under:
“I have duly considered the facts of the case and the submission of the appellant, assessment order and remand report of the A.O. The appellant has raised as many as 10 grounds of appeal in this case. Ground No.1 to 6 of the appellant are against the initiation of proceeding u/s.147 of the Act. The appellant has challenged the validity of the issuance of notice u/s.148 of the Act, stating that the A.O. has not applied his mind before issuing the notice as the reasons recorded by the A.O. are vague and not definite. Further, as per appellant, the A.O. has issued notice on 30-03-2016 but the approval of the Competent Authority i.e. PCIT, Central-1, Kolkata has been received 0 31-03-2016. The appellant has also alleged that the A.O. has not disposed of the preliminary objections raised against the initiation of proceeding. The submissions made by the appellant along with details were forwarded to the Assessing Officer for his examination and comments. The A.O. furnished the remand report with his comments on the submission of the appellant. The A.O. has made categorical reply on all the technical ground raised by the appellant. The A.O. has stated in the remand report that as per record, notice u/s.148 of the Act on 30-03- 2016 were sent through speed post. The envelope has the stamp of concerned Post Office on 31-03-2016. This clearly shows that notice had gone out of the hand of the AO. on or before 31-03-2016. Further, the AO. has stated that the reasons recorded were not vague rather very specific as details of transactions were duly mentioned in the reasons to believe. Further, the AO. has conducted enquiry on the basis of this reason to believe which resulted in addition to the total income. The AO. in the remand report has stated that as per records, the Ld. PCIT, Central-1, Kolkata has accorded approval for initiation of proceeding u/s.148 of the Act on 30- 03-2016. Further, even the Communication issued by PCIT's office for approval sanctioning the initiation of re-assessment proceedings is also on 30-03-2016. Therefore, considering the merit in factual details furnished by the AO. vide its remand report dated 24-05-2024, I do not find merit in the technical grounds raised by the appellant vide grounds No.1 to 6. Therefore, grounds No.1 to 6 are rejected.”
6. The Ld. Counsel for the assessee stated that the reopening of assessment has been made in this case by the Assessing Officer without complying with the necessary conditions as prescribed in section 147 of the Act as to the recording of reasons u/s. 148(2). The ld Counsel submitted that only after recording satisfaction and reasoned belief by the AO , the reopening can be made after obtaining approval of the competent authority. The ld. AR referred to page no. 51 of the paper book, which contained reasons recorded by the Assessing Officer and submitted that virtually Assessing Officer had not recorded any reasons at all as the AO recorded just three lines only for reopening the assessment and as such the same is invalid and against the provisions of the Act. The Ld. AR, therefore, prayed that the reopening of assessment may be quashed.
The Ld. DR, on the other hand, submitted that the issue was not raised before the authorities below and, therefore, the issue may be restored to the file of the Ld. CIT(A) or the Assessing Officer, who will decide the matter afresh after taking into account the pleas of the assessee.
After hearing the rival contentions and perusing the material on record, we find from the reasons recorded u/s. 148(2), a copy of which is available at page 51 of the paper book that the Assessing Officer has not recorded any satisfaction or reasons and merely acted on the borrowed satisfaction. for the sake of brevity and ready reference, we extract the reasons hereinbelow:
“Please refer to your letter dated 05/04/2016 wherein you have requested to provide reasons for issuance of notice u/s 148. The same is reproduced as below: "Information received from ITO (Inv.), Unit-t. Kolkata that the assessee company received funds of Rs 3.71 Crore approx after deposit of cash at source either in individual current account or proprietorship account maintained with ICICI Bank Ltd.
2. Under the circumstances mentioned above I have reason to believe that the above income has escaped assessment and it is a fit case for reopening u/s 47 of the IT Act, 1961. This is for your necessary information.”
The Assessing Officer has referred to the information received from ITO, Inv. Unit- 1, Kolkata that assessee has received funds of Rs.3.17 Cr. after deposit of cash at source either in individual current account or proprietorship account maintained with ICICI Bank Ltd. and thereafter, the Assessing Officer noted that he had reasons to believe that the income has escaped assessment to that extent. In our opinion, the said reasons are vague, scanty and inadequate and cannot be allowed to be valid reasons warranting the reopening of assessment. In our considered opinion these are no reasons at all. In our view, the reasons have to be cogent and convincing giving all the details as to the transactions, date of transactions and from whom the money was received. However, no such details were given in the reasons recorded by the AO and therefore, reopening of assessment is invalid and cannot be sustained. The case of the assessee finds support from the decision of Hon’ble Delhi High court in CIT Vs. Insecticides (India) Ltd. (2013) 38 taxmann.com 403 (Del.), where in the similar issue is decided in favour of the assessee. Considering the facts of the case and the decision of the Hon’ble Delhi High Court, we are inclined to quash the reopening of assessment made by the Assessing Officer. Consequently, the legal issue raised by the assessee under Rule 27 of ITAT Rules is allowed.
In the revenue appeal , the only issue raised by the revenue is against the deletion of addition of Rs.2,85,00,000/- by Ld. CIT(A) as made by the Assessing Officer on account of sale of investments.
Though we have quashed the reopening of assessment made by the Assessing Officer nevertheless even on merits the assessee has a very good case and Ld. CIT(A) has rightly deleted the addition by giving a very detailed finding from page 69 to 78 of his order, wherein the Ld. CIT(A) noted that the assessee company received Rs.2,85,00,000/- from the sale of investments which were acquired in the earlier assessment years for which the returns were duly filed by the assessee and the investments were accepted by the revenue in the earlier assessment years. Ld. CIT(A) also noted that during the course of assessment proceedings, the assessee company in support of purchase of investments filed evidences of allotment of shares to them and bank statement highlighting the payments mode etc. Similarly, in support of sale of investments the assessee filed the copies of sale bills, ledger of the parties, relevant bank statements etc. The assessee company also filed the copies of return of income, audited financial statements, bank statements, confirmation of accounts of the parties to whom the investments were sold. The Ld. CIT(A) also noted that the parties to whom the investments were sold has sufficient net worth and amount paid to the assessee company constituted only 0.41% to 1.61% of the total net worth. Moreover, there was no immediate cash deposits into their bank accounts as alleged by the AO. The Ld. CIT(A) also referred to the remand report called for from the Assessing Officer wherein the Assessing Officer stated that none of the documents filed by the assessee were additional evidences. The Ld. CIT(A) noted that the Assessing Officer neither noted or pointed out any defect in the evidences furnished by the assessee nor has disputed the purchases. The Ld. CIT(A) further noted that the Assessing Officer has relied on the report of the ITO, Inv. Wing only holding that the sale of shares were bogus and sham on which the Assessing Officer has relied upon and given his finding. Thereafter ld. CIT(A) by relying on various decisions as quoted in page 70 to 78 of the paper book directed the Assessing Officer to delete the addition. In our opinion, the Ld. CIT(A) has given a very cogent and detailed findings while deleting the addition and, therefore, no interference is required at our end. On this count also, the appeal of the revenue is dismissed. Therefore, the issue raised by the assessee under Rule 27 is allowed meaning thereby the legal issue raised by the assessee is allowed and the appeal of the revenue is dismissed.
In the result, the appeal of the revenue is dismissed and re-opening of assessment is quashed by allowing the issue raised under Rule 27 of ITAT Rules