ASN POLYMERS PVT. LTD,NEW DELHI vs. ITO WARD -1(1), NEW DELHI

ORDER PER H.S. SIDHU, JM

Assessee has filed the present appeal against the impugned order dated 15.01.2019 passed by the learned Commissioner of Income Tax (Appeals)-1 New Delhi relating to Assessment Year 2010-11 on the following grounds:-

1. The order passed by the Learned Commissioner of Income Tax (Appeals)- 1 (“Ld. CIT(A)”) under Section 250 of the Act is bad in law and on the facts and circumstances of the case.

2. That Ld. CIT(A) has erred in law and on the facts and circumstances of the case in upholding the order passed by the Ld. Assessing Officer (“Ld. AO”) which is barred by limitation. 3. The Ld. CIT(A) has erred in law and on the facts and circumstances of the case in upholding the order passed by the Ld. Assessing Officer (“Ld. AO”) which is premised on lack of jurisdiction.

4. The Ld. CIT(A) has erred in law and on the facts and circumstances of the case in upholding the order passed by the Ld. Assessing Officer (“Ld. AO”) thereby making addition of Rs. 45,00,000/- under Section 68 of the Act.

5. The Ld. CIT(A) has erred in law and on the facts and circumstances of the case in upholding the order passed by the Ld. Assessing Officer (“Ld. AO”) thereby making addition of Rs. 90,000/- under Section 69C of the Act. 6. The above grounds of appeal

are independent and without prejudice to one another.

7. The appellant may be allowed to add / withdraw or amend any ground of appeal at the time of hearing.

Later on, the assessee has also filed an additional ground which is also reproduced as under:-

1(i). That on facts and circumstances of the case, the Ld. CIT(A) has erred in upholding validity of notice u/s 148 and consequential reassessment proceedings u/s 147 even though the same are without recording proper reasons in terms of provisions of section 147 of the Income tax Act, 1961. ii. That the reasons are merely on the basis of information from Revenue Authorities, Mumbai and in absence of independent application of mind or investigation, the re-opening u/s 148 is wholly on the basis of borrowed satisfaction. iii. That addition made on the basis of information from department per se does not constitute tangible material and in absence of any adverse material on record, the re-assessment proceedings u/s 148 is illegal and not sustainable for want of tangible material. iv. That in absence of proper approval in terms of provisions of section 151 of the Act, the notice u/s 148 is illegal and without jurisdiction. vi. That even otherwise, the addition of Rs. 45,90,000/- made by the Assessing Officer is wholly based on statement recorded u/s 132(4) and the same being not available with the AO for recording reasons before initiating the reassessment proceedings, the reopening is merely on surmises and presumption.”

Shirish C. Shah who was alleged to be the main person involved in controlling various entities which were engaged in providing bogus accommodation entries. The Assessing Officer merely on the basis of information received from the department has initiated the reassessment proceedings against the assessee company without carrying any independent enquiry or investigation in respect of the statements of Shirish C. Shah and Om Prakash Khandelwal. At the time of recording the reasons, the statements were not available with the AO and even these statements having been subsequently retracted have no evidentiary value. Learned counsel for the assessee further submitted that assessee company has raised objection in respect of the proceedings under section 147/148 of the Act and requested the Assessing Officer to provide the copies of statement of Shri. Shirish C. Shah, copy of assessment order of M/s Prraneta Industries Limited for Assessment Year 2010-11 and copy of bank statement of M/s Prraneta Industries Limited and any other information or material on the basis of which was recorded which was not provided by the Assessing Officer to the assessee which clearly established that no documentary evidence was available with the Assessing Officer at the time of recording the reasons even otherwise. This is a case of borrowed satisfaction and is not sustainable in the eyes of law. Learned counsel for the further stated that the opportunity of cross examination of Shri. Shirish C. Shah was not provided to the assessee by the Assessing Officer which is also contrary to the various decision rendered by the Hon’ble High Courts and Hon’ble Apex Court and the assessment framed by the Assessing Officer is liable to be cancelled. To support these argument learned counsel for the assessee cited various citations which includes Pr. CIT vs. RMG Polyvinyl Ltd. [2017] 396 ITR 5 (Delhi); SABH Infrastructure Ltd. vs. ACIT [2017] 398 ITR 198 (Delhi HC); Orient Craft Ltd. vs. CIT [2013] 354 ITR 536 (Del. HC). Learned counsel for the assessee has also argued on merit in detail also.

“Section 68, read with section 147, of the Income-tax Act, 1961- Cash credit (Accommodation entry) – Assessment year 2008- 09 – Information was received from investigation wing that assessee-company was a beneficiary of accommodation entries received from certain established entry operators - During investigation, it was found that entry operators were engaged in money laundering business for beneficiaries - According to Assessing Officer, sources of transactions were not explained - Notice was issued by Assessing Officer to reopen assessment on aforesaid basis that income chargeable to tax to extent of accommodation entry had escaped assessment - Whether information received from investigation wing could not be said to be tangible material per se without a further inquiry being undertaken by Assessing Officer to establish link between 'tangible material' and formation of reason to believe that income had escaped assessment and consequently, reassessment was unjustified - Held, yes”

In the present case, after setting out four entries, stated to have been received by the Asessee on a single date i.e. 10th February, 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: "1 have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries." The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: "it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries". In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case.

“Held, allowing the petition, 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 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.”

Order pronounced on 30/12/2020.