KRISH IMPEX PVT. LTD.,DELHI vs. ITO WARD-14(4), NEW DELHI

1. That under the facts and circumstances, the reopening of Asstt. u/s. 147 / 148 is illegal, without jurisdiction, mechanical and unsustainable in law as well as on merits.

The facts in brief qua the issue of validity of initiation of proceedings u/s.147 as argued by the ld. counsel for the assessee are that, notice u/s.148 was issued on the basis of information received from the office of Director of Income Tax (Investigation-II), New Delhi stating that during the course of search operation carried out in the case of Shri Surendra Kumar Jain group of cases wherein extensive inquiry and document seized were made, it was found that Shri S.K. Jain group and various entities were involved in providing accommodation entries. The assessee company was also found to be beneficiary of the accommodation entry in the documents seized. The reasons recorded by Assessing Officer have been enclosed in the paper book which is very exhaustive running into several pages. One of the core reasons for entertaining the reason to believe by the Assessing Officer was that, no return of income was available in the record or in the ITD system for Assessment Year 2010- 11. He mentioned in his reasons that from the perusal of the income tax return for the Assessment Years 2009-10 and 2011-12, it is observed that assessee company’s authorized capital has risen from Rs.1 lac in Assessment Year 2009-10 to Rs.30 lac in Assessment Year 2011-12 and accordingly notice u/s.148 was issued on 11.03.2016. The ld. Assessing Officer on the basis of material found/ information received during the course of search in the premises of Jain Brothers came to the conclusion that assessee has taken accommodation entry to Rs.15 lac from the following two parties through S.K. Jain Group.

After discussing modus operandi and the methods adopted by the various concerns of S.K. Jain and others, he held that the share capital received by the assessee for sums aggregating to Rs.15 lacs is a bogus accommodation entry and unexplained cash credit which is to be added u/s.68 and has also added notional commission of Rs.27,000/-; and amount of Rs.36,000/- on account of payment of authorized capital treating to be a capital expenses.

One of the main contentions of the ld. counsel for the assessee before us is that, the Assessing Officer has recorded the reason or entertained reason to believe on a wrong presumption of fact that assessee has not filed any return of income for the Assessment Year 2010-11. This allegation of the Assessing Officer is absolutely incorrect and this fact was specifically brought to the notice of Ld. CIT (A) and was challenged). Ld. CIT (A) ordered for the remand report by the Assessing Officer on this point and after verification which Assessing Officer had admitted that return of income was filed and available on record. The relevant observation on this issue as incorporated in the appellate order reads as under:

He thus submitted that, the entire basis and presumption for reopening is incorrect facts and is erroneous, i.e., the Assessing Officer has failed to even verify the return of income filed u/s. 139(1) on 12.08.2010 which had attained finality. Even the approval u/s.151 mentions that no return has been filed which is appearing in the paper book at page 20. In support of his contention, he strongly relied upon the judgment of Hon’ble Jurisdictional High Court in the case of PCIT vs. RMG Polyvinyal (I) Ltd., 396 ITR 5 (Del) and judgment of Hon’ble Gujarat High Court in the case of Vijay Haishchandra Patel Vs. ITO as reported in 400 ITR 167 (Guj.); and S.N.G. Developers Ltd., 404 ITR 312 (Del) and catena of other judgments.

On the other hand, ld. DR submitted that in the ITD system return filed, return of income filed by the assessee was not reflected and the Assessing Officer could have only verified by the ITD system. Otherwise also, from the perusal of the reasons recorded it can be seen that the Assessing Officer has discussed the entire material having live link nexus to the income escaping assessment with regard to bogus accommodation entry of share application money from these two companies and assessee was found to be beneficiary of such accommodation entry, therefore, the reasons recorded are valid to assume proper jurisdiction. He strongly relied upon the observation of the Ld. CIT (A).

After considering the rival submissions and on perusal of the material on record specifically with regard to validity of proceedings u/s.147 as argued before us, it is seen that the Assessing Officer in the reasons has categorically mentioned that no return of income was filed for Assessment Year 2010- 11. It is from the perusal of return of income for Assessment Year 2009-10 and 2011-12, he has drawn a presumption that since authorized share capital has been increased from Rs.1 lac in Assessment Year 2009-10 to Rs.30 lac in Assessment Year 2011-12. He has no information or record regarding Assessment Year 2010-11, whether assessee had received any share capital or not or any return of income was filed or not. Even at the time of seeking approval u/s.151, it has been categorically mention that in item no.8 that ITR has not been filed. Based on this recommendation and Assessing Officer’s satisfaction, approval has been granted that it is a fit case for issuing notice u/s.148, whereas the fact of the matter is that income tax return for Assessment Year 2010-11 was duly filed in time on 12.08.2010 u/s. 139 (1) and same was available on ITD system which is also evident from the comments of the Assessing Officer filed before the Ld. CIT (A) as incorporated above. Thus, the very premise for reopening was that the assessee has not filed the return of income which has been found to be factually incorrect. Even though there was a tangible material or information coming from the investigation wing, but Assessing Officer on the said material/ information received has to apply his mind after verifying the assessment records and after due application of mind, he has to satisfy himself and reached to reason to believe that income chargeable to tax has escaped assessment. Such omission of vital fact of filing of return of income has been frowned upon by the Jurisdictional High Court in the case of PCIT Vs. RMG Polyvinyal (I) Ltd. 396 ITR 5 (Del.) In this case, the A.O. reopened the case on the premises that the return was not filed as per database of Deptt., although it was already filed.

Thus, on this ground alone, we hold that reasons recorded is based on complete non application of mind by the Assessing Officer, therefore, same are bad in law and does not confer any jurisdiction upon the Assessing Officer to reopen the case u/s.147 and accordingly the proceedings u/s.147 are quashed.

In the result, the appeal of the assessee is allowed. Other grounds raised by the assessee have been rendered infructuous in view of the finding given above.