DEVKI NANDAN BINDAL,NEW DELHI vs. ITO, WARD- 46(3), NEW DELHI

PER BHAVNESH SAINI, J.M.

20 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi.

ITA.No.2846/Del./2015 & CO.No.333/Del./2015 M/s. KLF Food (India) Ltd., - A.Y. 2007-2008 :

3.1. The assessee challenged the addition before the the Ld. CIT(A). Ld. CIT(A) noted that all the investor companies are assessed to tax under section 153C/153A of the Income Tax Act, 1961 and nothing adverse was found against the assessee during the course of assessment.

Therefore, addition was deleted.

21 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi.

3.2. The Revenue is in appeal challenging the deletion of addition of Rs.1.50 crores and assessee in the cross- objection challenged initiation of re-assessment proceedings under section 147/148 of the Income Tax Act, 1961.

3.3. Before considering the issue on merit, we proceed to decide the legal issue i.e., reopening of assessment in the matter. Learned Counsel for the Assessee submitted that validity of the reassessment proceedings is to be determined with reference to the reasons recorded under section 147/148 of the Income Tax Act, 1961. He has referred to PB 23, which is reasons for reopening of assessment. PB-44 is assessment order passed under section 143(3), Dated 8th December, 2009 for assessment year under appeal i.e., 2007- 2008, in which the Assessing Officer has examined the impugned issue of share capital and share premium. He has submitted that the reasons recorded are vague and the Assessing Officer did not verify the return of income, in which all the particulars on account of share capital/ premium have been disclosed by the assessee to the Revenue Authorities.

The Assessing Officer did not apply his mind and that the 22 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi.

Assessing Officer recorded the reasons on borrowed satisfaction. There is no allegation in the reasons recorded that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment under section 147 of the Income Tax Act. Therefore, notice issued under section 148 of the I.T. Act after a period of four years from the end of the relevant assessment year, in case where the original assessment has been framed under section 143(3) of the Act is illegal and invalid. He has relied upon Judgment in the case of Viniyas Finance and Investment (P) Ltd., 357 ITR 646 and Order of ITAT, Delhi Bench in the case of M/s. Shiv Sai Infrastructure (P) Ltd., vs. Pr. CIT ITA.No.2527/Del./2017. He has submitted that since initiation of reassessment proceedings are based on non- application of mind and reasons are recorded on borrowed satisfaction, therefore, reassessment is invalid. In support of this proposition, he has relied upon the decisions of the Delhi High Court in the case of G & G Pharma India Limited 384 ITR 147 (Del.) and PCIT vs., Meenakshi Overseas (P) Ltd., 395 ITR 677 (Del.) and PCIT vs., RMG Poly vinyl 396 ITR 5 (Del.).

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He has submitted that the reasons recorded are vague and no particulars of credit have been mentioned in the reasons.

The reasons also did not say if assessment have already been framed under section 143(3). Even the nature of the credit is not mentioned in the reasons. No particulars of accommodation entries have been mentioned. He has relied upon decision of Delhi High Court in the case of Signature Hotels (P) Ltd., 338 ITR 51 (Del.) He has submitted that reassessment is initiated on mere suspicion only. He has referred to page-1 of the paper book filed by the Departmental Representative in which the ACIT of the Investigation Wing has directed to issue notice under section 147/148 of the Income Tax Act, 1961 after recording reasons. He has submitted that all the Investors are assessed to tax and no material found during the course of search have been supplied to the assessee. He has submitted that proceedings are initiated on mere suspicion which is not reason to believe and based on no tangible material. He has submitted that reopening of assessment may be quashed.

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PB-52 is the list of the Investors. The assessee did not disclose all material facts necessary for the assessment. The report of the Investigation Wing is tangible material, therefore, on that basis reopening of the assessment is justified. The Learned Departmental Representative however submitted

25 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi. that report of the Investigation Wing was never supplied to the assessee being confidential in nature.

We, rely upon the decision of the Hon’ble Bombay High Court in the case of Indivest PTE Ltd., vs. Addl. CIT (2013) 350 ITR 120 (Bom.). The assessee has filed copy of the reasons recorded for reopening of assessment at Page-23 of the Paper Book, which reads as under :

“Office of the Assistant Commissioner of Income-tax, Circle, Rohtak.

1. Name and address of the M/s. KFA Foods (India) assessee Ltd., 2. Status Pvt. Ltd., Company 3. Assessment Year 2007-2008.

Reasons in brief for reopening the case under section 147 of the Income-tax Act, 1961 :

In this case, information was received from DIT (Inv.)-II, New Delhi, vide letter F.No.DIT (Inv.)-II under section 26 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi.

148/2012-13 dated 15.03.2013. On the basis of search in the cases of Shri Surendra Kumar Jain group of cases (entry operator) and further enquiries the DDIT (Inv.) has suggested the notice under section 148 in following cases for the A.Y. 2007-08 is required to be issued to bring to tax the undisclosed income regarding the accommodation entries obtained by the companies.

2. After going through entries it is revealed that M/s. KLA Foods (India) Ltd., who is assessed with this Circle, has availed the following accommodation book entries :-

Sr.No. Name of the Company PAN F.Y. 2006-07 Amount (Rs.) 1. M/s. KLA Foods AACCK8299G 1,50,00,000/- (India) Ltd.,

Therefore, I have reason to believe that income to the tune of Rs.1,50,00,000/- has escaped assessment.

Issue Notice under section 148 of the Income-tax Act, 1961 for the assessment year 2007-2008.

Dated : 25th March, 2013 Sd/- S. Dayal Assistant Commissioner of Income-tax, Rohtak Circle, Rohtak”.

27 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi.

5.1. The relevant provision of Section 147 of the Income Tax Act provides as under :

“147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):

“Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of 28 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi. four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.”

5.2. In the aforesaid reasons, the Assessing Officer on the basis of the report of Investigation Wing recorded that the enquiries conducted by Investigation Wing suggested notice under section 148 is required to be issued. Similarly, Learned Counsel for the Assessee referred to page-1 of the Department Paper Book, in which, ACIT has required the Assessing Officer to issue notice under section 148 of the Income Tax Act after recording reasons. These facts clearly suggested that the Assessing Officer merely acted on the advice of the Investigation Wing. Though the report of the Investigation Wing is tangible material, but, Assessing Officer

29 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi. did not mention any details or particulars of credits in the reasons as to how he came to the conclusion that there is escapement of income in this case. No details as to what information was received have been mentioned in the reasons. In what manner share capital/premium have been received have not been mentioned in the reasons. No details of accommodation entry and accommodation provider have been mentioned in the reasons. It is not mentioned in the reasons, if there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment under section 147/148 of the Income Tax Act. It is an admitted fact that assessee prior to the reopening of assessment has already been assessed for the same year i.e., 2007-2008 under section 143(3) of the I.T. Act, 1961 vide order dated 8th December, 2009. Copy of the assessment order is filed Page-44 of the Paper Book in which it is mentioned that assessee filed original return of income on 8th November, 2007. The Assessing Officer examined the issue of share capital and charging of share premium and ultimately assessed the income at NET LOSS, without making any 30 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi. addition on account of share capital/share premium. The Assessing Officer did not mention in the reasons if assessee filed original return of income and whether assessee has been assessed under section 143(3) of the Income Tax Act.

The Investigation Wing has required the Assessing Officer to reopen the assessment. It, therefore, appears that re- assessment proceedings are initiated on mere suspicion and that reason to suspect is not the same thing as “reason to believe”. The A.O. recorded vague reasons based on no evidence at the dictate of Investigation Wing only. Thus, there is totally non- application of mind on the part of the Assessing Officer to record reasons for reopening of the assessment. The Assessing Officer did not mention any material facts in the reasons, therefore, reopening of assessment is clearly illegal and bad in law. In the case of Signature Hotels P. Ltd., vs., Income Tax Officer And Another (2011) 338 ITR 51 (Del.) the Hon’ble Delhi High Court held as under :

“Held allowing the petition, that the reassessment proceedings were initiated on the basis of information received from the Director of Income-

31 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi. tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lakhs during financial year 2002-03 as stated in the annexure.

According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information.

There was no dispute that the company, S, had a paid-up capital of Rs. 90 lakhs and was incorporated on January 4, 1989, and was also 32 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi. allotted a permanent account number in September, 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to be quashed”.

5.3. The Hon’ble Madras High Court in the case of Sri Sakthi Textiles Ltd., vs. JCIT and Another (2012) 340 ITR 144 (Mad.) held that “reasons for notice must specify that there was failure to disclose material facts necessary for assessment.”

5.4. The Hon’ble Madras High Court in the case of Karti P. Chidambaram & Others vs. ACIT (2018) 402 ITR 488 (Mad.) observed that “When original assessment passed after scrutiny, granting exemption - Notice after four years on the ground that claim for exemption was not examined properly - No failure to disclose material facts necessary for assessment.”

5.5. The Hon’ble Delhi High Court in the case of Avtec Ltd., vs. DCIT (2017) 395 ITR 434 (Del.) noted that “In case of notice after four years, the conditions precedent for 33 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi. reassessment is that in what manner assessee failed to disclose material facts fully and fresh or tangible material must be disclosed in reasons.”

5.6. Considering the facts of the case, in the light of reasons recorded above and discussion, it is clear that the Assessing Officer did not mention any material facts in the reasons. The Assessing Officer did not mention that assessee was already assessed under section 143(3) in the original assessment, in which, Assessing Officer has already examined the issue of share capital/premium and what was the material produced before him regarding accommodation entry. The Assessing Officer did not record as to who has provided accommodation entry to assessee in the reasons.

Thus, there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment under section 147 of the Income Tax Act, 1961.

5.7. In view of the above, it is clear that in the instant case the Assessing Officer reopened the assessment after 04 years from the end of the assessment year and Assessing Officer has failed to specify if there is any failure on the part

34 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi. of the assessee to disclose fully and truly all material facts necessary for assessment under section 147 of the Income Tax Act, therefore, conditions of Section 147 of the Income Tax Act are not satisfied in this case. Further, the reasons are vague and do not disclose any incriminating material against the assessee. The decisions relied upon by Learned Counsel for the Assessee squarely apply to facts of case. Therefore, reopening of the assessment is wholly unjustified in the matter. We are, therefore, of the view that assumption of jurisdiction under section 147/148 of the Income Tax Act is clearly illegal and bad in Law. We, accordingly, set aside the orders of the authorities below and quash the reopening of the assessment under section 147/148 of the Income Tax Act, 1961. Resultantly, all additions stand deleted. The cross- objections of the assessee is allowed. In view of these findings, there is no need to decide the Departmental Appeal on merits, in which, Ld. CIT(A) has already deleted the addition.

35 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi.

ITA.No.2845/Del./2015 & C.O.No.372/Del./2015 Param Exim Limited – Assessment Year – 2007-2008.

KLF Food (India) Ltd., deleted the addition on merit.

8. The Revenue is in appeal challenging the deletion of addition of Rs.3.20 crores and Assessee is in cross objection challenging the reopening of the assessment in the matter. Learned Representatives of both the parties submitted that the issue is same as have been considered in the case of M/s. KLF Food (India) Ltd., except that in this 36 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi.

case the return was processed under section 143(1) of the Income Tax Act, 1961.

“Office of the Assistant Commissioner of Income-tax, Circle, Rohtak.

Reasons in brief for reopening the case under section 147 of the Income-tax Act, 1961 :

In this case, information was received from DIT (Inv.)-II, New Delhi, vide letter F.No.DIT (Inv.)-II under section 148/2012-13 dated 15.03.2013. On the basis of search in the cases of Shri Surendra Kumar Jain group of cases (entry operator) and further enquiries the DDIT (Inv.) has suggested the notice under section 148 in following cases for the A.Y. 2007-08 is required to be issued to bring to tax the 37 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi. undisclosed income regarding the accommodation entries obtained by the companies.

2. After going through entries it is revealed that M/s.

Param Exim Ltd., who is assessed with this Circle, has availed the following accommodation book entries :-

Sr.No. Name of the Company PAN F.Y. 2007-08 Amount (Rs.) 1. M/s. Param Exim AACCP9669B 3,20,00,000/- Ltd.,

Therefore, I have reason to believe that income to the tune of Rs.3,20,00,000/- has escaped assessment.

Issue Notice under section 148 of the Income-tax Act, 1961 for the assessment year 2007-2008.

Dated : 25th March, 2013 Sd/- S. Dayal Asst. Commissioner of Income-tax, Rohtak Circle, Rohtak”.

9.1. Learned Counsel for the Assessee submitted that apart from the fact that the issue is same as have been considered in other case, but, in the present case the amount in question as mentioned in the reasons at Rs.3.20 crores have been wrongly mentioned because the amount in 38 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi. question is Rs.2.20 crores [PB-10]. He has also submitted that the Assessing Officer in the reasons has mentioned that income escaped for assessment for F.Y. 2007-2008 instead of F.Y. 2006-2007. He has, therefore, submitted that since wrong facts have been mentioned in the reasons for reopening of assessment, therefore, on this reason alone the reopening of the assessment is invalid and bad in Law.

39 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi.

293 ITR 548 (Bom.) held that “when notice for reassessment basing on non-existing reasons and provisions inapplicable at relevant time – Not constituting reasons to believe. Notice invalid.” The Hon’ble Punjab and 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 a reassessment.”

11.1. The Hon’ble Bombay High Court in the case of Ankita A. Choksey vs. Income Tax Officer And Others (2019)

411 ITR 207 (Bon.) held that “Condition precedent for issue of notice for reassessment is that the reason to believe that income has escaped assessment must be based on correct facts. Notice based on wrong facts is without jurisdiction and is to be quashed.”

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11.2. In the instant case, the Assessing Officer has recorded vague reasons based on wrong facts. The escapement of income based on accommodation entry as informed by Investigation Wing have been mentioned at Rs.3.20 crores which in fact was Rs 2.20 crores.

Such fact is mentioned in the balance sheet of the assessee, copy of which is, filed at Page-10 of the paper book, which is also supported by the list of Investors filed at Page-21 of the paper book. The Assessing

Officer in the reasons for reopening has also mentioned incorrect F.Y. 2007-2008 instead of F.Y. 2006-2007.

Therefore, the reasons are based on wrong facts, which clearly show that there was no application of mind on the part of the Assessing Officer while recording reasons for reopening of the assessment. We, therefore, considering the above discussion and following the reasons for decision in the case of M/s. KLF Food (India)

Ltd., (supra), hold that assumption of jurisdiction by the Assessing Officer for reopening of the assessment is illegal and bad in Law. We, accordingly, set aside the 41 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi. orders of the authorities below and quash the reopening of assessment in the matter. Resultantly, all additions stand deleted. In view of the above, there is no need to decide the Departmental Appeal on merit in which Ld.

CIT(A) has already deleted the addition.

Assessees are allowed and both Departmental Appeals are dismissed.”

7.2. According to Section 148(1), before making reassessment under section 147 of the Income Tax Act, 1961, A.O. shall have to serve the notice under section 148 upon the assessee requiring him to furnish the return as specified in the notice. However, in the present case it is an admitted fact that the notice issued under section 148 of Income Tax Act returned back to the A.O. Even in the record the address of the assessee is not completely mentioned.

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The report submitted by the Learned Counsel for the Assessee shows that postal authorities have mentioned against the registered cover issued by the A.O. containing notice under section 148 of Income Tax Act “item delivery attempted - addressee moved”. It would show that notice under section 148 have not be served upon the assessee and no further evidence have been produced on record, if any attempt have been made to serve the notice upon the assessee personally. The A.O. in the assessment order has noted that notice under section 148 have been served later on through affixture for which no record have been produced to satisfy the requirements of Law whether notice through affixture have been served in accordance with Law.

These facts considering the fact that incorrect address have been recorded in the speed post record would clearly reveal that no notice under section 148 have been served upon the assessee. Therefore, assumption of jurisdiction under section 147 of the Income Tax Act is clearly illegal and bad in Law.

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7.3. It may also be noted here that the A.O. in the reasons recorded for reopening of the assessment has merely recorded that Rs.15 lacs accommodation entry taken by the assessee has escaped assessment. However, at the re-assessment stage, A.O. made further addition of Rs.52.91 crores on account of deposits in the bank account of the assessee. No reasons have been mentioned as to why such addition have been made and what was the purpose in making the addition. The entire deposit in the Bank account of the assessee could never be unexplained. Even the Investigating Agency have not made any allegation against the assessee if that amount was an accommodation entry taken by the assessee ? The Ld. D.R. admitted that no notice have been issued by the A.O. while proposing to make this addition of Rs.52.91 crores. The issue is, therefore, covered in favour of the assessee against the Department by Judgment of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Limited vs., CIT [2011] 336 ITR 136 (Del.) in which in para 18 it was held as under :

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“We are in complete agreement with the reasoning of the Division Bench of the Bombay

High Court in the case of CIT vs., Jet Airways

(I) Limited [2011] 331 ITR 236 (Bom.). We may also note that the heading of section 147 is "income escaping assessment" and that of section 148 "issue of notice where income escaped assessment". Sections 148 is supplementary and complimentary to section

reasons for issuance of notice by the Assessing

Officer and sub-section (1) thereof mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or re-compute the escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to 45 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi. assess or reassess the escaped income chargeable to tax. As per Explanation 3 if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of the escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue

46 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi. coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148.”

7.4. Similar view is taken by the ITAT, Mumbai G- Bench in the case of Juliet Industries Ltd., Mumbai vs., ITO 6(3)(3), Mumbai (supra). Considering the totality of the facts and circumstances, we are of the view that A.O. has recorded non-existing, incorrect and wrong facts in the reasons recorded for reopening of the assessment. The A.O. did not applied his mind to the report of Investigation Wing.

The A.O. merely believed report of Investigation Wing without making further scrutiny at the assessment. The A.O. merely reproduced report of Investigation Wing without making further scrutiny of the same. The A.O. merely reproduced report of Investigation Wing and crux of statement of Shri Kishori Sharan Goel for reopening of the 47 ITA.No.4271/Del./2019 Shri Devki Nandan Bindal, Delhi. assessment in the matter. Therefore, it was merely a borrowed satisfaction without application of mind. We, therefore, held that initiation of re-assessment proceedings in the instant case is illegal, bad in law and is liable to be quashed. In this view of the matter, we set aside the orders of the authorities below and quash the reopening of assessment under section 147/ 148 of the Income Tax Act, 1961. Resultantly, all additions stand deleted. In view of the above, there is no need to adjudicate the issues on merit which are left with academic discussion only.

Order pronounced in the open Court.