ISHWAR CHAND MITTAL,NEW DELHI vs. ACIT CENTRAL CIRCLE-25, NEW DELHI

With this appeal the assessee has challenged the correctness of the order of the CIT(A)-29, New Delhi dated 04.01.2019 pertaining to A.Y. 2011-12.

Vide ground No. 1 to 1.4 the assessee has challenged the jurisdiction of the AO in initiating the proceedings u/s.147 of the Act claiming that the reopening of the assessment was bad in law.

Vide ground No. 2 to 10 the assessee has challenged the additions made u/s. 68 of the Act on merits.

Representatives of both the sides were heard at length case record carefully perused with the assistance of the counsel we have considered the relevant documentary evidence brought on record.

Briefly stated the facts of the case are that the assessee filed original return of income on 27.07.2011. A search conducted at the premises of the assessee on 22.03.2012 and the assessment was framed u/s. 153 A of the Act vide order dated 28.02.2014.

On 31.03.2016 notice u/.s. 148 of the Act was issued and served upon the assessee. The reasons for reopening the assessment read as under:-

A perusal of the above show that the completed assessment was reopened on the basis of the information received from the Investigation Wing, Kolkata by which the AO came to know that some brokers have affirmed that they were providing accommodation entries in the form of long term capital gain and one of the such scrip was Nouvea Multimedia. The AO was of the opinion that since the assessee has also dealt in the said company the LTCG of Rs. 76.73 lacs is nothing but accommodation entry received by the assessee in lieu of his unaccounted cash introduced in his accounts as LTCG.

On the strength of this information the AO reopened the assessment and completed proceedings by making addition of Rs.76.73 lacs.

At the very outset and as mentioned elsewhere we have to state that a search was contended at the premises of the assessee on 22.03.2012 and pursuant to the notice u/s. 153 A of the Act. The assessee filed his return of income alongwith return of income a computation of income was also filed which clearly show under the head “DPS of exempt income” capital gains u/s. 10 (30)of the Act.

It is thus apparently a case where action has been initiated on the basis of search u/s. 132 (4) of the Act in the case of the assessee. No incriminating material was found in the search of proceedings.

It is not the first time that assessee has filed the return of income in response to notice u/s 153A of the Act, prior to this the assessee had filed a return of income of Rs. 25.16 lacs which was also accompanied by the same computation of income which were filed with the return of income in response to notice issued u/s. 153 A of the Act.

We have carefully perused the assessment order framed u/s. 153 A of the Act and we find that no adverse inference was made to the returned income of the assessee when the AO was fully aware of the long term capital gains claimed as exempt from tax.

In our considered view while assuming jurisdiction u/s. 147 of the Act the AO merely acted on suspicion and we cannot say that he had “reasons to believe”.

In the garb of reassessment proceedings the AO sought to verify the same details on the strength of material which was already available on record. Duly considered and verified in the course of proceedings u/s. 153 A of the Act. Judgment of the Hon’ble Gujarat High Court in the case of Clearing Cargo Agency Vs. JCIT 307 ITR 1 (pages 31-52) is apt on the facts discussed here in above and the same read as under:

Coming back to the facts of the case, in the reasons recorded mentioned elsewhere the AO observed that income of Rs. 76.33 lacs has not been offered to tax in the return of income for A. Y.2011-12 whereas as mentioned elsewhere in all his return of income which clearly mentioned income claimed to be exempt u/s. 10 (38) as mentioned elsewhere the same was thoroughly examined after search operations at the premises of the assessee and after thorough examination the assessment was framed u/s. 153 A of the Act, therefore, in the light of the decision of the Hon’ble Gujarat High Court (supra) we are of the considered view that reopening of the assessment which was framed u/s. 153 A of the Act is bad in law.

At para -11 of his assessment order the AO concluded as under :- “In view of the above discussion it can be concluded that the assessee has not disclosed LTCG made through penny stock amounting to Rs. 76.70 lacs for the year under consideration. Accordingly in LTCG of Rs. 76.73 lacs is added to the income of the assessee.

This observation of the AO clearly show that there was no application of mind while issuing of notice u/s. 148 of the Act in as much as had he gone through the assessment records of the assessee he would have seen the computation of income filed with original return income and also with the return of income tax in response to notice u/s. 153 A of the Act. If he had done this exercise he would have known that LTCG has not only been disclosed in the return of income but the same was also claimed to be exempt.

In our considered view the proceedings has been initiated on the basis of no material less any tangible and relevant material and as such reasons recorded do not constitute valid reasons. Moreover the reopening is only on the basis of borrowed satisfaction and as mentioned elsewhere reasons are factually incorrect and the conclusion drawn by the AO in the assessment is contradictory.

Considering the facts of the case discussed elsewhere in the light of the decision of the Hon’ble Gujarat High Court we hold that the assumption of jurisdiction by the issue of notice u/s. 148 of the Act is bad in law which is quashed and accordingly the assessment so framed is also quashed.

Since we have quashed the assessment order itself we do not find it necessary to dwell into the merits of the addition ground No. 1 to 1.4 are allowed.

In the result, the appeal filed by the assessee is allowed.