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Income Tax Appellate Tribunal, “C”
Before: Shri Sanjay Garg & Shri Rajesh Kumar
IN THE INCOME TAX APPELLATE TRIBUNAL “C” (Virtual Court Hearing) BENCH KOLKATA Before Shri Sanjay Garg, Judicial Member and Shri Rajesh Kumar, Accountant Member I.T.A. No.1257/Kol/2018 Assessment Year: 2009-10 Alankar Commodeal (P) Ltd..........................................…………………….……Appellant C/o CA Bal Kishan Kedia, Bansal Complex, 1st Floor, Ram Nivas Talkies Chowk, Raigarh, Chhattisgarh-496001. [PAN: AAHCA1771G] vs. ITO, Ward-4(3), Kolkata…………….…..…...............……........……...…..…..Respondent Appearances by: Shri Sunil Kr. Agarwal, Advocate, appeared on behalf of the appellant. Smt. Ranu Biswas, Addl. CIT-DR, appeared on behalf of the Respondent. Date of concluding the hearing : December 16, 2021 Date of pronouncing the order : February 01, 2022 Hearing through Video Conferencing ORDER Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 04.04.2018 of the Commissioner of Income Tax (Appeals)-2, Kolkata [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act(hereinafter referred to as the ‘Act’). The assessee in this appeal has taken the following grounds of appeal: “1. That under the facts and circumstances of the case, the ld. CIT(A) erred in passing order ex-parte. 2. That under the facts and in the circumstances of the case, the notice issued u/s 148 of the Income Tax Act, 1961 is bad in law and hence the consequential reassessment order is also illegal and needs to be annulled. 3. That under the facts and circumstances of the case, the Ld. CIT(A) erred in confirming the addition of a sum of Rs.2,50,50,000/- for the share capital raised by the assessee, holding the same to be unexplained cash-credit in terms of sec.68 of the Income Tax Act, 1961. The addition is unjustified and need to be deleted. 4. That the appellant craves leave to add, alter, amend or withdraw any ground or grounds of appeal before or at the time of hearing.”
I.T.A. No.1257/Kol/2018 Assessment Year: 2009-10 Alankar Commodeal (P) Ltd. 2. Although in this appeal the assessee has raised multiple grounds of appeal but at the time of hearing the solitary grievance of the assessee has been confined to the legal issue relating to the validity of reopening of the assessment u/s 147 r.w.s 148 of the Act. 3. The brief facts of the case are that the assessee filed its return of income for assessment year 2009-10 on 04.09.2009 and the returned income was accepted. However, during the assessment proceedings for assessment year 2012-13, the Assessing Officer noticed that the assessee company had shown huge share premium of Rs.2,24,55,000/-. The Assessing Officer asked the assessee to give details of premium amount along with name, address, PANs of shareholders etc. In reply, the assessee submitted that no fresh share premium was received by the assessee during the year. That the premium amount account was continued at constant figures over the year since 31.03.2009. The Assessing Officer observed that the above information was not enough. He held that the assessee had failed to explain about the genuineness of the premium amount received during F.Y. 2008-09 relevant to A.Y. 2009-10. He, therefore, formed the belief that income of the assessee for A.Y. 2009-10 has escaped assessment. He, therefore, reopened the assessment for assessment year under consideration i.e. A.Y 2009-10. 4. The Ld. counsel for the assessee at the outset has submitted that the reasons recorded by the Assessing Officer did not constitute reasons to believe that any income chargeable to tax has escaped assessment. The Ld. counsel has submitted that there was no information available to the Assessing Officer to form belief that the income of the assessee for the assessment year under consideration has escaped assessment. That the reopening of the assessment could not be made on the basis of mere suspicion without having any tangible material with the Assessing Officer to form the belief of escapement of income. The Ld. counsel in this respect has relied upon the following case laws: (i) Tanmac India v. DCIT (2016) 97 CCH 189 [Madras HC] (ii) PCIT vs. Tupperware India Pvt. Ltd (ITA 415/2015) [Del. HC]
(iii) Prakriya Pharmacem v. ITO (2016) 238 Taxman 185 [Guj.HC]
(iv) CIT vs. Orient Craft Ltd. 354 ITR 536 [Del.] 2
I.T.A. No.1257/Kol/2018 Assessment Year: 2009-10 Alankar Commodeal (P) Ltd. (v) Dhoot Stono Crafts (P) Ltd. vs. ACIT (ITA 243/JPR/2020) [ITAT -Jaipur] (vi) Future Tech IT Systems Pvt Ltd. vs. CIT (ITA 1031/CHANDI/2019) [ITAT- Chandigarh]dated 27-04-2021 (vii) Indo Global Techno Trade Ltd. vs. ITO (ITA No.1616/CHD/2018) [ITAT- Chandigarh] dated 15.06.2020 (viii) PCIT vs. Meenakshi Overseas (2017) 395 ITR 677 [Del-HC] (ix) PCIT vs. G&G Pharma India Ltd. 384 ITR 147 (Del.) dated 08.10.2015
The Ld. counsel for the assessee has further submitted that the approval granted by Addl. CIT u/s 151(2) dated 13.03.2015 was given in a mechanical manner without application of mind. He has submitted that the Ld. Addl. CIT has given the approval under a wrong section i.e. section 147(b) of the Act, whereas, the said section 147(b) stood omitted from Income Tax Act w.e.f. 01.04.1989. That the approval was given by the Addl. CIT under non-existent section, in a mechanical manner, without application of mind and hence, in the absence of valid approval as mandated by law u/s 151, the reopening of the assessment u/s 147 r.w.s. 148 of the Act is bad in law and without jurisdiction and hence is liable to be quashed. The Ld. counsel in this respect has relied upon the following case laws: (i) Kalpana Shantilal Haria vs. ACIT [2017] 100 CCH 165 (Bom-HC) (ii) Omkam Developers Ltd. vs. ITO (ITA No.6862/Del./2018) [Del-Trib] dated 11.05.2021 (iii) Madhu Apartment Private Ltd. v. ITO (2021) 86 ITR 317 (Delhi-Trib.) (iv) Maheshwari Roller Flour Mills Pvt. Ltd. Vs. ITO (ITA.No.4257/Del./2019) (Delhi- Trib.) dated 17.12.2020 (v) VRC Township Pvt. Ltd. Vs. ITO (ITA.No.1503/Del./2017) (Delhi-Trib.) dated 14.10.2020 (vi) Smt. Kalpana Shantilal Haria vs. ACIT [WP(L) No. 3063 of 2017 (Bom)] 6. The Ld. counsel has further submitted that mere appending of the expression ‘Yes’ to the proposal of Assessing Officer for reopening of the assessment, was not 3
I.T.A. No.1257/Kol/2018 Assessment Year: 2009-10 Alankar Commodeal (P) Ltd. sufficient. The written satisfaction has to be recorded by the Addl. CIT showing the application of mind to the proposal of the Assessing Officer. He has in this respect also relied upon the following decisions:
(i) Synfonia Tradelinks Pvt. Ltd. v. ITO (2021)435 ITR 642 [Del-HC]
(ii) PCIT vs. N.C. Cables Ltd., 391 ITR 11 (Del-HC)
(iii) CIT vs. S. Goyanka Lime & Chemical Ltd. (2015) 64 taxmann.com 313 [SC]
(iv) CIT vs. S. Goyanka Lime & Chemicals Ltd. (2015) 56 taxmann.com 390 [MP-HC]
(v) United Electrical Company (P) Ltd. Vs. CIT 258 ITR 317 (Del-HC)
(vi) Chhugamal Rajpal vs. S.P. Chaliha &Ors. 79 ITR 603 (SC)
The Ld. DR, on the other hand, had submitted that the aforesaid legal ground has been taken by the assessee for the first time and the same should not be admitted for adjudication. He has further submitted that since the assessee had failed to supply relevant information during the assessment year 2012-13 relating to the premium received by the assessee during A.Y. 2009-10, therefore, the Assessing Officer was justified in forming belief that the income of the assessee for assessment year 2009-10 had escaped assessment.
We have heard the rival contentions and gone through the records. As per the provisions of section 147 of the Act, the Assessing Officer (in short ‘AO’) is authorized to reopen the assessment proceedings, if he has reason to believe that any income chargeable to tax has escaped assessment. The courts of law have time and again held that such a reason to believe that the income of the assessee has escaped assessment should be based on some tangible material which comes to the knowledge of the AO. An assessment cannot be reopened under section 147 of the Act on the basis of mere suspicion. The Ld. Counsel for the assessee, as discussed in earlier paras of this order, has placed reliance on the reasons recorded by the AO for formation of belief that the income of the assessee has escaped assessment to submit that the same are not valid
I.T.A. No.1257/Kol/2018 Assessment Year: 2009-10 Alankar Commodeal (P) Ltd. reasons.The reasons recorded by the Assessing Officer dated 12.03.2015 are reproduced as under: “First year case. The company shows huge share premium of Rs 22455000/-. In the course of assessment for Asst Yr 2012-13, the AR is asked to give the details of premium amount along the line of name, address, PANs of the shareholders, no of shares, face value, premium amount, as on 31/3/09 and 31/3/12. But no reply was given till date. He only says that the premium amount a/c is continued at constant figure over the years, since 31/3/09. In view of this, 1 have reason to believe that the premium amount as stated above is not explained, and therefore chargeable to tax but has escaped assessment within the meaning of sec. 147 of IT Act.’61.”
A perusal of the above reproduced reasons for reopening of the assessment reveals that the Assessing Officer, in fact, had not got any reliable information or tangible material to form the belief that the income of the assessee for the year under consideration has escaped assessment. The Assessing Officer during the assessment proceedings for assessment year 2012-13 wanted to enquire about the share premium shown by the assessee in his accounts. However, the assessee replied that no share premium was received during the assessment year under consideration (A.Y. 2012-13); that the share premium amount account was continued at constant figures over the years since 31.03.2009.
Since, no share premium was received by the assessee during the assessment year 2012-13, therefore, in our view, the assessee was justified to state that the share premium, if any, was received in the earlier year 2008-09, and that the Assessing Officer was not supposed to make enquiries relating to the amounts received in the earlier years, during the assessment proceedings for the Assessment Year 2012-13. Even irrespective of the above fact, the Assessing Officer did not get any reliable information that the share premium received by the assessee during the financial year 2008-09 relevant to the assessment year under consideration was bogus or was not genuine. Since the assessee had only given the information to the Assessing Officer that the share premium was received during the financial year 2008-09 relevant to A.Y 2009-10, that, in our view, itself, did not constitute any information to form the belief that the income of the assessee for the A.Y. 2009-10 has escaped assessment. Mere information that the assessee had received share premium during an earlier assessment year, in our view, cannot be said to be a reason to form the belief that the income of the assessee has escaped assessment for 5
I.T.A. No.1257/Kol/2018 Assessment Year: 2009-10 Alankar Commodeal (P) Ltd. that year. In this case, the Assessing Officer has made a wild suspicion regarding the escapement of income without any information in his hand regarding escapement of income. The suspicion of the Assessing Officer was not based on any reliable information or tangible material coming to his possession in this respect. There is no dispute to the well settled proposition of law that reason to believe must have a material bearing on the question of escapement of income. It does not mean a purely subjective satisfaction of the assessing authority; such reason should be held in good faith and cannot merely be a pretense. Furthermore, the reasons to believe must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Assessing Officer and the formation of belief regarding escapement of income. The powers of Assessing Officer to reopen an assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". There can be no manner of doubt that the words" reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence, but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or are not material or relevant to the belief required by the section. The court can always examine this aspect, though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court. The entire law as to what would constitute "reason to believe" has summed up by the Hon’ble Supreme Court in Income Tax Officer v.LakhmaniMewaldas (1976) 103 ITR 437. Reliance in this respect can also be placed on the decision of the Hon'ble Punjab & Haryana High Court in the case of 'CIT vs Paramjit Kaur' (2008) 311 ITR 38 (P&H), wherein the Hon'ble High Court held that the in the absence of sufficient material to form satisfaction of the Assessing Officer that income of the assessee had escaped assessment, the issuance of notices u/s 148 of the Act was not valid.
The Hon’ble Delhi High Court in ACIT vs. Meenakshi Overseas (P) Ltd. (2017) 82 taxmann.com 300 (Del) has held as under:
I.T.A. No.1257/Kol/2018 Assessment Year: 2009-10 Alankar Commodeal (P) Ltd. “23. Thus, the crucial link between the information made available to the A.O and the formation of belief is absent. The reasons must be self-evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing.” 12. The above proposition of law has been settled by the various Coordinate Benches of the Tribunal as well as Hon’ble Supreme Court and High Courts in various case laws. The Ld. DR could not point out any contrary proposition of law in this respect. In view of the above discussion and as per settled position of law, the reopening of assessment in this case was bad in law.
The Ld. counsel for the assessee has further invited our attention to the approval granted by the Addl. CIT for reopening of the assessee u/s 151(2) of the Act. The contents of which are reproduced as under:
“For recording the reasons for initiating proceedings u/s 148 and for obtaining the approval of the CIT/Addl. CIT/” Sl.No. 1 Name & address of the assessee M/s.Alankar Commodeal Pvt Ltd 2 Status Company 3 PAN No. AAHCA1771G 4 Assessment Year 2009-10 5 The quantum of income has Rs.2,24,55,000/- escaped assessment 6 Whether provisions of sec147(a) 147(b) or 147(b) are applicable or both the sections are applicable? 7 Whether the assessment is proposed to be made for the first time, if the reply is in the affirmative, please state: Yes a) Whether any voluntary return 04/09/2009 has already been filed? b) Date of filling of the return. 8. If the answer to item 7 is in the negative, please state: a) The income originally assessed b) Whether it is a case of under assessment or assessment at too NA low rate or assessment which has been made subject to excessive issue of depre 7
I.T.A. No.1257/Kol/2018 Assessment Year: 2009-10 Alankar Commodeal (P) Ltd. 9. Whether provision of sec150(1) are applicable, if the reply is in the negative, the relevant facts may be stated against the item No.10 and it may be brought to that sec150(1) would not and in the way of initiating proceedings u/s148. 10. Reasons for the behalf that The company shows huge share income has been escaped premium of Rs.2,24,55,000 in course of assessment. assessment for AY12-13, the AR was asked to give detail of premium amount along the name, address, PANs of the shareholders, no of share, face value as on 31-3-09 and as on 31-3-12. No Reply was given but only stated that the premium amount a/c is continued at constant figures over the years, since 31-3-09. In view of this, this case is fit for reopening u/s 147 by issuing notice u/s 148 for A.Y 09-10 ITO, Ward-4(3), Kolkata. 11 Whether the CIT/JCIT is satisfied Yes on the reasons recorded by the Sd. 3-3-15 ITO, Ward-4(3), Kolkata that it is Addl.CIT, R-4, Kolkata. a fit case for issue of notice u/s 148.
A perusal of the aforesaid approval granted by the Addl. CIT reveals that the Assessing Officer had mentioned the relevant section as ‘147(b)’ which admittedly has been omitted from the Statute w.e.f. 01.04.89 and further without application of mind to the contents of the aforesaid proposal, the Ld. Addl. CIT granted approval in a mechanical manner by saying ‘Yes’, even without application of mind that the approval has been sought under wrong section. The aforesaid contents of the approval clearly shows that the approval has been granted by the Addl. CIT in a mechanical manner without application of mind. In the case of Omkam Developers Ltd. (supra) the Coordinate Bench of the Tribunal while relying upon the decision of the Hon'ble Delhi High Court in the case of PCIT Vs NC Cable Ltd. in ITA 335/2015 has held that mere mentioning ‘Yes’ for approval without any evidence of application of mind amounts to mechanical approval by CIT. Under the similar circumstances, wherein, the section for invoking reassessment has been recorded as section 147(b), the Coordinate Bench of the
I.T.A. No.1257/Kol/2018 Assessment Year: 2009-10 Alankar Commodeal (P) Ltd. Tribunal observed that this showed that the Assessing Officer had filled proforma in a mechanical manner and the Ld. CIT(A) has also approved the same mechanically.
In view of the proposition of law laid down by the various Coordinate Benches of the Tribunal as well as High Courts, since the approval in this case was granted in a mechanical manner without application of mind by the Ld. Addl. CIT, therefore, the same does not constitute a valid approval u/s 151 of the Act and hence, the assessment of jurisdiction to reopen the assessment by the Assessing Officer on the basis of invalid approval was bad in law.
In view of the above discussion, since we have held that reopening of the assessment is bad in law, therefore, the assessment order framed u/s 147 of the Act is not sustainable in the eyes of law and the same is hereby quashed.
In the result, the appeal of the assessee stands allowed.
Kolkata, the 1st February, 2022. Sd/- Sd/- [Rajesh Kumar] [Sanjay Garg] Accountant Member Judicial Member
Dated: 07.02.2022. RS Copy of the order forwarded to: 1. Alankar Commodeal (P) Ltd 2. ITO, Ward-4(3), Kolkata 3. CIT(A)- 4. CIT- , 5. CIT(DR),
//True copy// By order Sr.PS/D.D.O, Kolkata Benches