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Income Tax Appellate Tribunal, DELHI BENCHES : SMC : NEW DELHI
Before: SHRI H.S. SIDHU
This appeal filed by the assessee is directed against the order passed by the Ld. CIT(A)-XVII, New Delhi on 17.04.2013 in relation to the assessment year 2003-04 on the following grounds:-
1. Having regard to the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in upholding the addition
of Rs. 20,00,000/- made by the AO u/s. 68 of the Income Tax Act, 1961.
2. Having regard to the facts and circumstances of the case, AO has erred in law and on facts in assuming
jurisdiction and in passing the assessment order u/s. 143(3)/147 of the Act.
3. The appellant craves leave to add, alter, amend, forgo
substitute or withdraw any ground at or before the time of hearing and all the above grounds are without prejudice to each other.
The facts in brief are that assesse is a Private Limited Company and filed the return of income for the assessment year 2003-04 on 31.10.2003 showing NIL income. The assessee filed a revised return on 20.11.2003 but again showing NIL income. No assessment u/s. 143(3) of the Income Tax Act, 1961 (in short “Act) was done initially in this case. Subsequently, on receiving information from the Investigation Wing that the assessee had received accommodation entries from individuals, notice u/s. 148 of the Act was issued on 25.03.2010. The assessment was then completed u/s. 143(3)/147 of the Act on 24.12.2010 after adding Rs. 20 lacs u/s. 68 of the Act as the genuineness and creditworthiness of the share application money received during the relevant assessment year was not proved by the assessee.
Aggrieved with the aforesaid assessment order dated 24.12.2010, assessee appealed before the Ld. CIT(A) who vide his impugned order dated 17.04.2013 has affirmed the action of the AO and dismissed the appeal of the assessee.
During the hearing, ld. Counsel of the assessee has only argued legal ground no. 2 and stated the reassessment as made is without jurisdiction, without sanction of law, without compliance with mandatory provisions of section 147/148 of the Act and as such the same deserves to be quashed. He further stated that the reasons recorded for the reassessment are at pager book page no. 12 and the reasons are bald and do not contain even the prima facie view or reason to believe of the AO that income has escaped assessment to tax within the meaning of section 147 of the Act. There is no application of mind by the AO and no process of the matter by the AO before recording of the said reasons. It was further submitted that notice under section 148 was issued on 25.3.2010 merely on the basis of information from DI that assessee has received accommodation entry of Rs. 7 lakhs. Nowehre is there any mention of any application of mind or any independent inquiry or any link between any tangible material and formation of reason to believe that income chargeable to tax has escaped assessment. It was further submitted that addition involved is for Rs. 20 lacs whereas the alleged information was only for Rs. 7 lacs which too shows non-application of mind non-process by the AO. It is only subsequently in the course of reassessment that addition was made of Rs. 20 lakhs. Reasons recorded and notice in this case was issued simply based upon investigation report without any independent examination or investigation or application of mind as 3 borne out from the fact that notice issued for alleged receipt of bogus share capital of Rs. 7 lakhs whereas the assessee has received total capital of Rs. 20 lakhs which was later added to income. To support his aforesaid contention, he relied the case law of Hon’ble Supreme Court of India in the case of ACIT vs. Dhariya Construction Co. (2011) 197 Taxman 202 (SC); Delhi High Court in the case of Pr. CIT vs. RMG Polyvinyls (I) Ltd. (2017) 83 taxmann.com 348 (Delhi); Pr. CIT vs. Meenakshi Overseas () Ltd. vs. ITO 395 ITR 677 (Del.); Signature Hotels Pvt. Ltd. vs. ITO (2012) 20 taxmann.com 797 (Del.); Pr. CIT vs. G&G Pharma India Ltd. 384 ITR 147 (Del.) and CIT vs. Sfil Stock Broking Ltd. 2010) 435 ITR 285 (Delhi). In view of above, he requested to quash the re-assessment.
On the contrary, Ld. DR relied upon the orders of the authorities below and the case laws referred therein and stated that Assessing Officer issued the notice u/s. 148 after due application of mind. He further stated that the AO has followed due procedure before issuing the notice u/s 148 of the I.T. Act, 1961. The Assessing Officer had tangible material in the form of information received from the Investigation Wing. The Assessing Officer did not proceed to any hearsay, conjecture or surmises. He only filed the case laws on the merits of the case and not on the legal issue raised in ground no. 2.
I have heard both the parties and carefully considered the rival submissions. I note that in this case the AO while recording the reasons for the belief that income has escaped assessment has recorded the reasons as under:-
6.1 After perusing the aforesaid reasons recorded, I find that it is a case where action has been taken mechanically on the basis of information received from investigation wing, and, not on an independent application of mind and therefore on this ground, the proceedings are without jurisdiction. It is apparent from the fact that according to the AO, Investigation Wing has informed that assessee company has received accommodation entry of Rs. 7 lacs in the garb of share application money which is said to be as per inquiry made by the Directorate of Investigation (DI) on the persons said to be involved providing accommodation entries/ bogus share application. Based on inquiries made, DI is said to have provided details of persons who are beneficiaries of such accommodation entries and one such beneficiary is said to be the assessee. In this case notice u/s. 148 of the Act was issued on 25.3.2010 merely on the basis of information from D.I. that the assessee has received accommodation entry of Rs. 7 laks. There is no mention of any application of mind or any independent inquiry or any link between any tangible material and formation of reasons to believe that income chargeable to tax has escaped assessment. It is also noted that in the reasons recorded, the AO has made vague remarks that assessee has income chargeable to tax which has escaped assessment. The AO has not even specified as to what is the amount of alleged income escaping assessment, which shows that AO has merely recorded certain unsubstantiated allegations on the basis of some information received, which is against the principle laid down by the Hon’ble Delhi High Court in the case of CIT vs SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del), wherein it was observed that reassessment proceedings were initiated on the basis of information received from investigation wing regarding alleged accommodation entries and it has been held by jurisdictional Delhi High Court that mere information received from DDIT(Inv) cannot constitute valid reasons for initiating reassessment proceedings in the absence of anything to show that A.O. had independently applied his mind to arrive at a belief that the income had escaped assessment. Thus, the AO has acted mechanically and without any independent application of mind. The reasons recorded are therefore vague, highly non specific and reflect complete non-application of mind. It is also noted that there is no live link or direct nexus between alleged material and, inference. It is further noted that initiation of proceedings is also based on non application of mind much less independent application of mind but is a case of borrowed satisfaction. To support this view, I draw support from the following decisions:- i)ACIT vs. Dhariya Construction Co. (2011) 198 taxman 202 (SC) wherein the Hon’ble Court has held that :
“Section 147 of the Income Tax Act, 1961 – Income escaping assessment – Non- disclosure of primary facts – Whether opinion of District Valuation Officer (DVO) per se is not an information for purposes of reopening of an assessment under section 147; Assessing Officer has to apply his mind to information, if any, collected and must form a belief thereon – Held, yes.” ii) Pr CIT v. RMG Plyvinyl (I) Ltd. (2017) 83 taxmann.com 348 (Hon’ble Delhi High Court has observed as under:-
There can be no manner of doubt that in the instant there was a failure of application of mind by the AO to the facts. In fact he proceeded on two wrong premises - one regarding alleged non-filing of the return and the other regarding the extent of the so-called accommodation entries.
Recently, in its decision dated 26th May, 2017 in (Principal Commissioner of Income Tax-6 v. Meenakshi Overseas Pvt. Ltd.), this Court discussed the legal position regarding reopening of assessments where the return filed at the initial stage was processed under Section 143(1) of the Act awl not under Section 143(3) of the Act. The reasons for the reopening of the assessment in that case were more or less similar to the reasons in the present case, viz., information was received from the Investigation Wing regarding accommodation entries provided by a 'known' accommodation entry provider. There, on facts, the Court came to the conclusion that the reasons were, in fact, in the form of conclusions "one after the 8
other" and that the satisfaction arrived at by the AO was a "borrowed satisfaction" and at best "a reproduction of the conclusion in the investigation report."
As in the above case, even in the present case, the Court is unable to discern the link between the tangible material and the formation of the reasons to believe that income had escaped assessment. In the present case too, the information received from the Investigation Wing cannot be said to be tangible material per se without a further inquiry being undertaken by the AO. In the present case the AO deprived himself of that opportunity by proceeding on the erroneous premise that Assessee had not filed a return when in fact it had.
To compound matters further the in the assessment order the AO has, instead of adding a sum of 78 lakh, even going by the reasons for reopening of the assessment, added a sum of Rs.1.13 crore. On what basis such an addition was made has not been explained.
For the aforementioned reasons, the Court is satisfied that no error was committed by the ITAT in holding that reopening of the assessment under Section 147 of the Act was bad in law.”
iii) 395 ITR 677 (Del) Pr. CIT v. Meenakshi Overseas (P) Ltd. v. ITO “36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a ‘borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment.
For the aforementioned reasons, the Court is satisfied that in the facts and circumstances of the case, no error has been committed by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law.
The question framed is answered in the negative, i.e., in favour of the Assessee and against the Revenue. The appeal is, accordingly, dismissed but with no orders as to costs.
6.2 Keeping in view of the facts and circumstances of the case as explained above and respectfully following the precedents, as aforesaid, the proceedings initiated by invoking the provisions of section 147 of the Act by the AO and upheld by the Ld. CIT(A) are nonest in law and without jurisdiction, hence, the assessment is quashed and ground no. 2 is allowed. Since no other grounds were raised by the Assessee’s counsel, the same are dismissed as such. Accordingly, the assessee’s appeal is partly allowed.
In the result, the Appeal filed by the Assessee stands partly allowed.