M/S. BULL RIDERS FINANCIAL SERVICES (P) LTD.,NEW DELHI vs. ITO, GHAZIABAD

2 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. ORDER PER BHAVNESH SAINI, J.M.

This appeal by Assessee has been directed against the Order of the Ld. CIT(A), Muzaffrnagar, Dated 16.01.2017, for the A.Y. 2005-2006, challenging the reopening of the assessment under section 147 of the I.T. Act, 1961, sanction granted under section 151 of the I.T. Act, 1961 and addition of Rs.2,23,50,000/- on account of share application money under section 68 of the I.T. Act, 1961.

3 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. in the report was perused and the evidences were gathered. The A.O. found that the assessee is in receipt of unexplained sum in the guise of share application money/premium from M/s. Vasudeva Champ Finvest of Rs.10 lacs and M/s. Vasudeva Farms of Rs 3.50 lacs on 18.03.2005. The A.O, therefore, recorded reasons to believe that income chargeable to tax in a sum of Rs.13,50,000/- had escaped assessment and accordingly, notice under section 148 was issued on 29.03.2012 and duly served upon the assessee. The assessee was provided copy of the reasons recorded. The assessee asked for copy of the statement of Shri S.K. Gupta which was also supplied to the assessee vide Order Sheet entry Dated 12.03.2013. The A.O. considering the details on record found that assessee has received share application money/share premium of Rs.2,23,50,000/- from 12 parties. The details of the same are noted in the assessment order at pages-2 and 3. The same are reproduced as under :

4 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh.

2.1. The A.O. after considering the issue in detail made the addition of the above amount under section 68 of the I.T. Act, 1961. The assessee challenged the reopening of the assessment as well as addition on merit before the Ld. CIT(A). However, the Ld. CIT(A), dismissed the appeal of assessee.

5 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh.

6 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. he has advised that further inquiries can be made on the basis of the available information. Learned Counsel for the Assessee referred to PB-347 which is reasons recorded for reopening of the assessment which is a fax message copy received by the A.O. on 28.03.2012 at 3.30 P.M. on which the A.O. merely signed and did nothing in the matter. Thus, the A.O. acted in a mechanical manner without having any evidence, material or information in her possession with regard to accommodation entries received by assessee. PB- 346 is letter Dated 28.03.2012 of ACIT, Central Circle-22, New Delhi to CIT-1 etc., New Delhi intimating the list of beneficiaries of accommodation entries received from Shri S.K. Gupta. PB-344 is letter of ITO, Ward-3(1), New Delhi, Dated 27.03.2012 addressed to the A.O. intimating that assessee has received accommodation entries from M/s. Vasudeva Champ Finvest, Shri Suresh Gupta, Rs.10 lakhs on 18.03.2005 and from M/s. Vasudeva Farms Rs.3,50,000/- on 18.03.2005. PB-91 is objections Dated 10.12.2012 filed by assessee against reopening of the assessment which have not been disposed of by the A.O.

7 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. PB-142 is copy of the bank statement of assessee to show that there is no entry of Rs.10 lakhs or Rs.3.50 lakhs received from the above parties on 18.03.2005. PB-92 is assessment order under section 143(3) Dated 27.09.2007 and PB-349 is the sanction granted under section 151 of the I.T. Act, 1961, which is illegal and bad in law in which the Addl. CIT merely recorded “Yes, I am satisfied” and CIT, Ghaziabad recorded “Yes, I am satisfied. It is a fit case to issue of notice under section 148.” Learned Counsel for the Assessee in the background of these facts submitted that A.O. was not having any information, details or material at the time of reopening of the assessment that assessee has received any accommodation entries from Shri S.K. Gupta. The A.O. merely signed on the fax message. The A.O. did not apply her independent mind. The assessee has not received any entries of Rs.13.50 lakhs from the above two parties as the A.O. did not make any such addition in the assessment order. The A.O. thus recorded wrong facts in the reasons and even no names or details have been mentioned in the reasons for reopening of the assessment. The assessment

8 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. has been reopened after four years from the end of the relevant assessment year and assessment had already been completed under section 143(3) of the I.T. Act, 1961. The A.O. has not recorded anything in the reasons if there was any failure on the part of assessee to disclose true and correct facts relevant to assessment year under appeal. He has submitted that sanction granted by the Addl. CIT and CIT is illegal and void abinitio, therefore, reopening of the assessment is bad in law and is liable to be quashed.

9 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. necessary material relevant to the assessment year under appeal.

“Reasons for issuing notice u/s.148 of the Act in the case of M/s. Bull Riders Financial Services (P) Ltd., for the A.Y. 2005-06 – reg. Information has been received from the Investigation Wing of the Income Tax Department that the above named assessee is a beneficiary of accommodation entries received from various concerns floated by Shri S.K.Gupta during the period relevant to A.Y. 2005-06.

10 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. I have perused the information contained n the report and the evidences gathered. The report provides details of the modus oparandi and explains how the unaccounted money of the beneficiaries are ploughed back in its books of account in the form of bogus share capital/capital gains etc after routing the same through the bank account(s) of the entry operators floated by Shri S.K.Gupta. Entry operators were identified after thorough investigation on the basis of definitive analysis of their identity, creditworthiness and the source of the money ultimately received by the beneficiaries. In the instant case, the assessee is found to be the beneficiary of accommodation entry of Rs.13.50 lacs from such entry operators controlled by Shri S.K.Gupta during the F.Y. 2004-05 relevant to the A.Y. 2005-06 as per the specific details of transaction The assessee has received unexplained sums from the entry operators as per the above details as per information available with the undersigned. As explained above, the identity, creditworthiness and 11 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. genuineness of transactions with the persons found to be entry operators cannot be established. I therefore have reasons to believe that on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment for above assessment year, the income chargeable to tax to the extent of accommodation entry mentioned above, has escaped assessment within the meaning of Section 147 of the Act.” Sd/- Income Tax Officer, Ward-1(2), Ghaziabad. Addl. CIT, Range-1, Ghaziabad”.

5.1. It is a fax message received by the A.O. on 28.03.2012 at 3:30 PM having Phone No.020756306. The Ld. D.R. produced the assessment record which we have perused and find that the reasons recorded above are fax message received by the A.O. from some other Officer, on which, the A.O. has signed in original. The Ld. D.R. also did not dispute this fact. It would show that A.O. received the recorded reasons for reopening of the assessment on fax 12 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. message on which she (A.O.) has merely signed. The letters referred to by the Learned Counsel for the Assessee which are correspondence between the A.O. and the Income Tax Officers, DCIT, CC-22 etc., New Delhi would show that A.O. was not having list of the beneficiaries and statement of Shri S.K. Gupta even in January/February 2013. The A.O. has been consistently seeking information from the concerned authorities at New Delhi to provide list of beneficiaries and statement of Shri S.K.Gupta after signing the recorded reasons on 28.03.2012. These correspondence, thus, clearly support the fact that A.O. was not having any list of beneficiaries of accommodation entries and statement of Shri S.K. Gupta at the time of signing the recorded Fax message for reopening of the assessment on 28.03.2012. The A.O. ultimately on 27.03.2012 (PB-344) through letter Dated 27.03.2012 from ITO, Ward-3(1), New Delhi, came to know that assessee is beneficiary of accommodation entry provided by M/s. Vasudeva Champ Finvest, Shri Suresh Gupta, Rs.10 lakhs and M/s. Vasudeva Farms Rs.3,50,000/- on 18.03.2005. The A.O. however did not 13 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. make any addition of Rs.13,50,000/- from these parties in the re-assessment order. The party at Sl.No.4 M/s. Vasudeva Farms Pvt. Ltd., though is mentioned in re- assessment order, but, against it, an amount of Rs.20 lakhs have been mentioned by the A.O. in the assessment order which fact is incorrect in the reasons recorded for reopening of the assessment. Thus, the assessee has not received any amount from M/s. Vasudeva Champ Finvest, Shri Suresh Gupta and M/s. Vasudeva Farms of Rs.13,50,000/-.

5.2. The Hon’ble Punjab & Haryana High Court in the case of CIT vs., Atlas Cycle Industries [1989] 180 ITR 319 (P&H) held as under :

Held, (i) that the Tribunal was right in cancelling the reassessment as both the grounds on which the reassessment notice was issued were not found to exist, and, therefore, the Income-tax Officer did not get jurisdiction to make the reassessment.

14 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. 5.3. The Hon’ble Delhi High Court in the case of Pr. CIT vs., SNG Developers Ltd., [2018] 404 ITR 312 (Del.) in which it was held as under :

“Held, dismissing the appeal, that the reasons recorded by the Assessing Officer for reopening the assessment under section 147, issuing a notice under section 148 did not meet the statutory conditions. As already held by the Appellate Tribunal, there was a repetition of at least five accommodation entries and the total amount constituting the so-called accommodation entries would therefore, not work out to Rs.95,65,510. It was unacceptable that the Assessing Officer persisted with his "belief" that the amount had escaped assessment not only at the stage of rejecting the assessee’s objections but also in the reassessment proceedings, where he proceeded to add the entire amount to the income of the assessee. Therefore there was non-application of mind on the part of the Assessing Officer. The 15 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. Appellate Tribunal was justified in confirming the order of the Commissioner (Appeals) and holding that the reopening of the assessment was bad in law.”

5.4. The Hon’ble Delhi High Court in the case of Shamshad Khan vs., ACIT [2017] 395 ITR 265 (Del.) in which it was held as under :

Held, allowing the petition, that the form for recording the reasons for initiating the proceedings under section 148 of the Act for obtaining approval of the Commissioner itself proceeded on the erroneous basis that the quantum of income which had escaped assessment was Rs.28,75,000 whereas the assessee had filed returns showing income of merely Rs.20,56,145 and it was on this basis that the Additional Commissioner and the Commissioner granted their approval for reopening the assessment. Even though the assessee highlighted this fundamental error at the initiation of the case by stating that his income was 16 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. mentioned as Rs.20,56,145 instead of Rs.69,71,191, this was summarily rejected stating that it was a clerical mistake and that the latter figure would be treated as his income. If the correct income i.e. Rs.69,71,191 was put before the Commissioner at the time of seeking his approval, he might have taken a different view. There was nothing on record to show that the clerical mistake of substituting Rs.20,56,145 for Rs.69,71,191 was ever brought to the notice of the Commissioner either before or after approval or sanction under section 151(1) of the Act. The initiation of the case for reopening of the assessment was erroneous and without application of mind especially since the Assessing Officer had not examined the return filed, which would have revealed that the assessee had filed regular returns, had sufficient opening balance in his account and the withdrawals therefrom substantiated the donation made. Therefore, the 17 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. reopening of the assessment was unsustainable in law and the notice issued under section 147 of the Act was to be quashed.

5.5. The Hon’ble Bombay High Court in the case of Siemens Information Systems Ltd., vs., ACIT & Others [2007] 293 ITR 548 (Bom.) held as under :

“The petitioner had several EOU/STP units engaged in the business of export of software. In response to the notice for reopening the assessment for the assessment year 1999-2000, the petitioner, objecting to the issuance of the notice, stated that the reasons furnished by the authority had quoted the provisions of section 10A as amended by the Finance Act, 2000, with effect from the assessment year 2001-02 and as such could not have been made applicable to the assessment year 1999-2000 and the notice had been issued under the mistaken belief about the correct position of law. However, opportunity to show cause was given to the petitioner as to why 18 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. the loss claimed should not be disallowed to be carried forward. On a writ petition :

Held, allowing the petition, (i) that it would be clear from the reasons given that the authority proceeded on the presumption that the law applicable was the law after the amendment and not the law in respect of which the petitioner had filed the return for the year 1999-2000. This by itself clearly demonstrated that there was total non-application of mind on the part of the authority and consequently, the notice based on that reason would amount to non-application of mind.

(ii) That the income derived by the assessee from an industrial undertaking to which section 10A applies could not be included in the total income of the assessee. Therefore, the petitioner was right in filing the return by excluding the income in terms of section 10A.”

19 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. 5.6. The crux of the above Judgments would be that, in case, incorrect, wrong and non-existing reasons are recorded by the A.O. for reopening of the assessment and that A.O. failed to verify the information received from Investigation Wing, the reopening of the assessment would be unjustified, bad in law and is liable to be quashed. The facts of the case would show that A.O. merely singed on the fax message which is reasons recorded for reopening of the assessment. The A.O. acted at the dictate of some other Officer of the Department and did not make any enquiry before signing the recorded reasons. It appears that since A.O. was not having relevant material with her, therefore, she never wanted to record reasons for reopening of the assessment and in some compelling circumstances, the A.O. has signed the fax recorded reasons. Thus, there is total non-application of mind on the part of the A.O. for reopening of the assessment. We rely upon Judgment in the case of Pr. Commissioner of Income Tax vs., RMG Polyvinyl (I) Ltd., 396 ITR 5 (Del.), Pr. Commissioner of Income Tax vs., Meenakshi Overseas (P) Ltd., 395 ITR 677 (Del.) and Pr.

20 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. CIT vs., G And G Pharma India Ltd., [2016] 384 ITR 147 (Del.) and Sarthak Securities Co. (P) Ltd., 329 ITR 110 (Del.).

5.7. The above discussion would make it clear that the A.O. herself has not recorded any reasons for reopening of the assessment. No details or evidence of receiving accommodation entries were available to the A.O. on the day of issue of notice under section 148 on 29.03.2012. The A.O. recorded wrong, incorrect and non-existing reasons and merely signed the fax message which was already recorded for reopening of the assessment. The A.O. did not apply her mind and the objections of the assessee have not been disposed of. Therefore, the reopening of the assessment is illegal, bad in law and void abinitio.

5.8. In the present case, the original assessment was completed under section 143(3) on 27.09.2007. The A.O. on the basis of the facts recorded by the assessee in the books of account came to know that assessee has received share application money/share premium of Rs.2,23,50,000/-.

21 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. This fact was already available to the A.O. at the time of passing of the original assessment order as the original return was filed on 31.03.2006 and was subjected to scrutiny assessment under section 143(3) of the I.T. Act, 1961. The A.O. in the reasons did not record if there was any failure on the part of the assessee to disclose truly and correctly all material facts necessary for assessment. The A.O. has not even mentioned names of the parties from whom assessee has received accommodation entry in the reasons. Thus, the First proviso to Section 147 of the I.T. Act would apply in favour of the assessee and A.O. cannot take any action against the assessee for reopening of the assessment. The Hon’ble Delhi High Court in the case of Consulting Engineering Services (India) P. Ltd., vs., DCIT & Another [2015] 378 ITR 318 (Del.) held as under :

Held, allowing the petition, (i) that the Assessing Officer in the first instance had raised an issue as to whether the interest payments were to be on the revenue account or capital account. The assessee had claimed it as a revenue expense and that had 22 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. been allowed in the original assessment proceedings. As could be seen from the reasons, the Assessing Officer had done nothing but to re- examine the records which were already available and had arrived at a different conclusion that the interest expenses ought to have been capitalized. This, by itself, did not amount to any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. It had not been indicated as to what particulars were not disclosed by the assessee. All the relevant accounts and records were available for consideration and the Assessing Officer had considered the entire material and passed a detailed assessment order. It could not be inferred from these facts that the assessee had not made a full and true disclosure of the material particulars necessary for assessment. (ii) That the Assessing Officer had not even indicated the extent of the allged escapement of 23 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. income. Furthermore, the Assessing Officer had once again stated that on perusal" of the notes to the accounts of the assessee and particularly the note at serial number 9 of the auditor's report, it was seen that the assessee had booked the professional fees less than the job in progress brought forward from the last year on the ultimate completion by an amount of Rs.3,21,21,550. Nothing further had been indicated apart from this fact which was there on record even in the original assessment. Therefore, the allegations of the Assessing Officer in the reasons that the assessee had failed to disclose full and true particulars of its income, was without any basis. Consequently, in view of the provisions of the first proviso to section 147, the Revenue could not be permitted to reopen the assessment as the necessary pre-condition for doing so in a case which was beyond four years from the end of the relevant assessment year had not been fulfilled.”

24 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. 5.9. The assessee filed copy of the sanction granted by Competent Authority to the reasons recorded for reopening of the assessment. Copy of the same is filed at page-349 of the PB in which Addl. Commissioner of Income Tax has mentioned “Yes, I am satisfied”. The Commissioner of Income Tax, Ghaziabad noted “Yes I am satisfied. It is a fit case to issue notice under section 148.” Such an approval is not valid in Law because it would show that approval have been granted without application of mind. The Hon’ble Delhi High court in the case of United Electrical Co. Pvt. Ltd., vs. Commissioner of Income Tax 258 ITR 317 in which approval by Addl. Commissioner of Income Tax under section 151 was given in the following terms “Yes, I am satisfied that it is a fit case for issue of notice under section 148 of the I.T. Act”. The Hon’ble Delhi High Court considering the similarly worded approval did not approve the same and held that “In the present case, there has been no application of mind by Addl. CIT before granting approval.” The Hon’ble Supreme Court in the case of CIT vs., S. Goyanka Lime & Chemical Ltd., [2015] 64 taxmann.com 313 (SC) approving the 25 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. Judgment of Hon’ble Madhya Pradesh High Court in the case of CIT, Jabalpur vs., S. Goyanka Lime & Chemical Ltd., [2015] 56 taxmann.com 390 (M.P.) in which the Departmental SLP has been dismissed on the same reason because the Joint Commissioner of Income Tax recorded satisfaction in a mechanical manner and without application of mind. The Hon’ble Madhya Pradesh High Court in the case of Arjun Singh vs., ADIT [2000] 246 ITR 363 (M.P.) in which also similarly worded sanction under section 148 was not found valid. Therefore, we are of the view that reopening of the assessment is bad in Law and that sanction/approval granted by the Competent Authority is also invalid. Considering the totality of the facts and circumstances of the case, we are of the view that reopening of the assessment is illegal, bad in Law and void abinitio. Therefore, the reopening of the assessment cannot be sustained in Law. In view of the above, we set aside the Orders of the authorities below and quash the reopening of the assessment under section 147/148 of the I.T. Act, 1961.

26 ITA.No.1891/Del./2017 M/s. Bull Riders Financial Services (P) Ltd., Ghaziabad, Uttar Pradesh. Resultantly, all additions stand deleted. Appeal of the Assessee is allowed.

Order pronounced in the open Court.