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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
आयकर अपीलीय अधिकरण “C” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI श्री महावीर स िंह, न्याययक दस्य एविं श्री मनोज कुमार अग्रवाल के मक्ष । BEFORE SRI MAHAVIR SINGH, JM AND SRI MANOJ KUMAR AGGARWAL, AM
Aayakr ApIla saM./ ITA No. 2413/Mum/2017 (inaQa-arNa baYa- / Assessment Year 2007-08) Pelican Credits & Securities Dy. Commissioner of Private Limited Income Tax 5(2)(1) 601, 9, JVPD, 10th road, JVPD Vs. 5th Floor, Room No. 571, Scheme, Vile Parle, Aayakar Bhavan, M.K. Mumbai-400 049 Road, Mumbai-400 020 .. (p`%yaqaaI- / Respondent) (ApIlaaqaI- / Appellant) स्थायी लेखा िं./PAN No. AAACP3453B अपीलाथी की ओर े / Appellant by : Shri Bhupendra Shah, AR प्रत्यथी की ओर े / Respondent by : Shri Abirama Karthikeyan, DR ुनवाई की तारीख / Date of hearing: 19.03.2019 घोषणा की तारीख / Date of pronouncement : 12.06.2019
AadoSa / O R D E R
महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
This appeal filed by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-10, Mumbai [in short CIT(A)], Appeal No. CIT(A)-10/DCIT-5(2)(1)/327/2015-16 vide order dated 21.12.2016. The Assessment was framed by the Dy. Commissioner of ITAs No. 2413/Mum/2017 Income Tax, Circle-5(2)(2) Mumbai (in short ‘DCIT/ITO/ AO’) for the A.Y. 2007-08 vide order dated 30.03.2015 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in reopening the assessment beyond four years whereas the facts of the assessee are totally covered by the proviso to section 147 of the Act. For this assessee has raised the following ground No. 1: -
“1. The learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)] has erred in law and on the facts of the case in confirming the action of Assessing Officer in reopening the assessment. The action is unjustified and unwarranted."
Briefly stated facts are that the assessee is a private limited company engaged in the business of trading in shares and securities. Original return of income was filed by assessee on 31.10.2007 for AY 2007-08. This return was processed under section 143(1) of the Act and subsequently the assessment was completed under section 143(3) of the Act dated 20.10.2009. Thereafter, the AO issued notice under section 148 of the Act dated 28.03.2014, which was received by assessee on 31.03.2014. The relevant assessment year involved is 2007-08 and notice under section 148 of the Act was issued on 28.03.2014. It means that the notice under section 148 of the Act was issued beyond four years. Admittedly original assessment was completed under section 143(3) of the Act. At this point, the learned Counsel for the assessee drew our attention to page No. 136 of assessee’s paper book wherein the ITAs No. 2413/Mum/2017 assessee has enclosed the reasons record for reopening of assessment under section 147 of the Act which reads as under: -
M/s Pelican Credits & Securities Pvt. Ltd. (AADCP6859Q) AY-2007-08
Reasons for reopening assessment u/s. 147 of the I.T. Act 1961
Information has been received from the office of DIT (Inv)-II, Mumbai, that assessee has obtained accommodation entries from the following bogus concerns. Statement has been recorded by the Investigation Wing, Mumbai, in the search case of Mr. Praveen Kumar Jain Group, in which it was admitted that accommodation entries were provided to the beneficiaries to reduce their profit liability. In this case assessee company has obtained accommodation entry from the following concerns:
Sr Name of the bogus party Amount (₹) No. 1. Alka Diamond Industries 15,00,000 2. Alka Diamond Industries 15,00,000 3. Nakshatra Business Pvt. Ltd (Hema Trading Co. 15,00,000 Pvt. Ltd) 4. Nakshatra Business Pvt. Ltd (Hema Trading Co. 15,00,000 Pvt. Ltd. ) 5. Javda India Impex Ltd. 15,00,000 6. Javda India Impex Ltd. 15,00,000 7. Kush Hindustan Entertainment Ltd. 15,00,000 8. Kush Hindustan Entertainment Ltd. 15,00,000
ITAs No. 2413/Mum/2017 9. Olive Overseas Pvt. Ltd (Realgold Trading Co. 15,00,000 Pvt. Ltd.) 10. Olive Overseas Pvt. Ltd. (Realgold Trading Co. 15,00,000 Pvt. Ltd.) 11. Vanguard jewels Ltd. 15,00,000 12. Vanguard Jewels Ltd. 15,00,000 13. Lexus Infotech Ltd. 30,00,000 In view of the above, I have reason to believe that an amount of ₹ 2,10,00,000/- chargeable to tax has escaped assessment for AY 2007-08, by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the said assessment year.”
The learned Counsel for the assessee stated that during the course of original assessment proceedings notice under section 133(6) of the Act were duly served on these parties and then the AO after verifying the details submitted by these parties have accepted the transactions as genuine and addition was made by the Assessing Officer. It was contended by the learned Counsel that even the AO has verified the issue of raising of share capital for the company during the year as the authorized share capital was raised from 10 lacs to 3 crore and has issued equity shares accordingly. According to the learned Counsel, the AO in the original assessment proceedings disallowed 1/5th of the stamp duty expenses under section 35D of the Act in respect of raising of this equity shares and consequently raising of share capital by the company during the year. The learned Counsel for the assessee stated that the assessee has submitted the following documents during the original assessment proceedings: -
Sr. Particulars of Documents submitted
ITAs No. 2413/Mum/2017 No. 1. Details of shares allotted giving names, address and PAN of the shareholders and number of shares allotted 2. Copies of PAN Card and relevant extract of the bank statement of shareholders listed in the reasons recorded evidencing contribution towards share capital 3. Details of share of investments of the shareholders listed in the reasons recorded 4. Copies of letters from shareholders listed in the reasons recorded explaining source of their investments into the share capital of our client along with their acknowledgement of Income Tax Return. 5. Copies of share certificates issued to the parties listed in the reasons for re- opening. 5. As regards to non-service of notice issued under section 133(6) of the Act in subsequent re-assessment, the learned Counsel for the assessee stated that these were issued after a gap of almost 7 years from the end of financial year in which the transactions took place and naturally during this long period the some of the parties may have shifted their area of operation or shifted the place of business. Even otherwise, the learned Counsel relied on the case laws. Hence, he urged that in view of the above reasons recorded by the AO for reopening of assessment there is no whisper in the reasons that there is any failure on the part of the assessee to disclose fully and truly all material facts relating to this assessment. Hence, according to him, once there is no failure on the part of the assessee in term of the proviso of section 147 of the Act, the re-assessment cannot stand to the scrutiny of the law. On the other hand, the learned Sr. Departmental Representative heavily relied on the reassessment and the order of CIT(A).
We have heard rival contentions and gone through the facts and circumstances of the case. We find that the assessing Officer reopened
ITAs No. 2413/Mum/2017 the assessment on the basis of information available on record which shows that there was a search under section 132 of the Act conducted by the department on the residential and business premises of one Shri Pravin Kumar Jain on 01.10.2013. The AO noted that during the course of search and based on search investigation it has been established that these persons are in the business of providing accommodation entries to various beneficiary companies, entities, persons through cheque to a number of paper and companies in lieu of cash. According to AO, record further shows that during the year under consideration the assessee company has availed/ introduced share capital with premium through following entities or the companies which are managed by Shri Pravin Kumar Jain.
Sr Name of the bogus party Amount (₹) No. 1. Alka Diamond Industries 15,00,000 2. Alka Diamond Industries 15,00,000 3. Nakshatra Business Pvt. Ltd (Hema Trading Co. 15,00,000 Pvt. Ltd) 4. Nakshatra Business Pvt. Ltd (Hema Trading Co. 15,00,000 Pvt. Ltd. ) 5. Javda India Impex Ltd. 15,00,000 6. Javda India Impex Ltd. 15,00,000 7. Kush Hindustan Entertainment Ltd. 15,00,000 8. Kush Hindustan Entertainment Ltd. 15,00,000 9. Olive Overseas Pvt. Ltd (Realgold Trading Co. 15,00,000 Pvt. Ltd.) 10. Olive Overseas Pvt. Ltd. (Realgold Trading Co. 15,00,000 Pvt. Ltd.) 11. Vanguard jewels Ltd. 15,00,000 12. Vanguard Jewels Ltd. 15,00,000 13. Lexus Infotech Ltd. 30,00,000 Total 2,10,00,000 7. We find from the records and the arguments of the learned Counsel for the assessee that during the course of original assessment proceedings, the AO issued notices under section 133(6) of the Act on these parties and then, the AO after verifying the details submitted by ITAs No. 2413/Mum/2017 these parties, have accepted the transactions as genuine and passed the assessment order under section 143(3) of the Act after satisfying himself about the genuineness of the transactions. The learned Counsel now before us, argued that the AO is just tried to justify his action of reopening of assessment that investigation wing has rebutted point wise retraction of the affidavit filed by Shri Praveen K Jain but the statement made by the Praveen K Jain was not provided to the assessee and no opportunity was given to cross examination to these parties on whose statements the AO have relied. Further, the learned Counsel has filed complete details of documents even during reassessment proceedings as well as original assessment proceedings. In such submissions, the learned Counsel stated that the AO in reasons record as nowhere pointed that there is a failure on the part of the assessee to disclose fully and truly all material facts relating to this assessment and due to that reason the income has escaped assessment. The learned Counsel relied on the decision of Hon’ble Bombay High Court in the case of PCIT vs. Shodiman Investments (P) Ltd ITA No. 1297/2015 (2018) 93 taxmann.com 153 (Bombay), wherein Hon’ble Bombay High Court has decided exactly identical issue wherein information received from DGIT(Investigation) about particular entity entering into suspicious transactions. Hon’ble Jurisdictional High court has considered the reasons in the absence of live link between the material coming to the notice of the AO and the formation of belief regarding assessment of income. Hon’ble High Court has considered this issue vide para 11 to 14 as under: -
“11. Further, a reading of the entire decision, it is clear that the reasonable belief on the basis of tangible material could be, prima facie, formed to conclude that income chargeable to tax has ITAs No. 2413/Mum/2017 escaped assessment. Mr. Mohanty, learned Counsel is ignoring the fact that the words 'whatever reasons' is qualified by the words 'having reasons to believe that income has escaped assessment'. The words whatever reasons only means any tangible material which would on application to the facts on record lead to reasonable belief that income chargeable to tax has escaped assessment. This material which forms the basis, is not restricted, but the material must lead to the formation of reason to believe that income chargeable to tax has escaped Assessment. Mere obtaining of material by itself does not result in reason to believe that income has escaped assessment. In fact, this would be evident from the fact that in para 16 of the decision in Rajesh Jhaveri Stock Brokers (P.) Ltd.'s, case (supra), it is observed that the word 'reason' in the …. 'reason to believe' would mean cause or justification. Therefore, it can only be the basis of forming the belief However, the belief must be independently formed in the context of the material obtained that there is an escapement of income. Otherwise, no meaning is being given to the words 'to believe' as found in Section 147 of the Act. Therefore, the words 'whatever reasons' in Rajesh Jhaveri Stock Brokers (P.) Ltd.'s, case (supra), only means whatever the ITAs No. 2413/Mum/2017 material, the reasons recorded must indicate the reasons to believe that income has escaped assessment. This is so as reasons as recorded alone give the Assessing Officer power to re- open an assessment, if it reveals/indicate, reasons to believe that income chargeable to tax has escaped assessment.
The re-opening of an Assessment is an exercise of extra-ordinary power on the part of the Assessing Officer, as it leads to unsettling the settled issue/assessments. Therefore, the reasons to believe have to be necessarily recorded in terms of Section 148 of the Act, before re-opening notice, is issued. These reasons, must indicate the material (whatever reasons) which form the basis of re-opening Assessment and its reasons which would evidence the linkage/nexus to the conclusion that income chargeable to tax has escaped Assessment. This is a settled position as observed by the Supreme Court in S. Narayanappa v. CIT [1967] 63 ITR 219, that it is open to examine whether the reason to believe has rational connection with the formation of the belief. To the same effect, the Apex Court in ITO v. Lakhmani Merwal Das [1976] 103 ITR 437 had laid down that the reasons to believe must have rational connection with or relevant
ITAs No. 2413/Mum/2017 bearing on the formation of belief i.e. there must be a live link between material coming the notice of the Assessing Officer and the formation of belief regarding escapement of income. If the aforesaid requirement are not met, the Assessee is entitled to challenge the very act of re-opening of Assessment and assuming jurisdiction on the part of the Assessing Officer.
In this case, the reasons as made available to the Respondent- Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However, that material is not further linked by any reason to come to the conclusion that the Respondent-Assessee has indulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped Assessment. It is for this reason that the recorded reasons even does not indicate the amount which according to the Assessing Officer, has escaped Assessment. This is an evidence of a fishing enquiry and not a reasonable belief that income chargeable to tax has escaped assessment.
ITAs No. 2413/Mum/2017 14. Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a re-opening notice on the basis of intimation regarding re-opening notice from the DDIT (Inv.) This is clearly in breach of the settled position in law that re- opening notice has to be issued by the Assessing Office on his own satisfaction and not on borrowed satisfaction.”
We noted from the above facts that the original return of income was filed by assessee on 31.10.2007 for AY 2007-08. This return was processed under section 143(1) of the Act and subsequently the assessment was completed under section 143(3) of the Act dated 20.10.2009. Thereafter, the AO issued notice under section 148 of the Act dated 28.03.2014, which was received by assessee on 31.03.2014. The relevant assessment year involved is 2007-08 and notice under section 148 of the Act was issued on 28.03.2014. It means that the notice under section 148 of the Act was issued beyond four years. Admittedly original assessment was completed under section 143(3) of the Act. We also noted from the reasons recorded that the AO in reasons record nowhere pointed that there is a failure on the part of the assessee to disclose fully and truly all material facts relating to this assessment and due to that reason the income has escaped assessment.
To support our view, we follow the decision of Hon’ble Supreme Court in the case CIT vs. Foramer France (2003) 264 ITR 566 (SC), wherein it has taken the view that the first proviso to section 147 of the ITAs No. 2413/Mum/2017 Act lays down an exception whereby the AO is not permitted to exercise his jurisdiction in reopening the assessment beyond a period of four years from the end of the relevant assessment year. Once the exception carved out by proviso to s. 147 of the Act comes into play, the case would fall outside the ambit of s. 147 of the Act. As per proviso to s. 147 of the Act, no action under this section can be taken after expiry of four years from the end of the relevant assessment year, unless inter alia, income chargeable to tax had escaped assessment by reason of failure of the assessee to make full and true disclosure of all material facts necessary for assessment. In case, there being no whisper in the reasons supplied to assessee that income escaped assessment by reason of assessee’s failure to make a full and true disclosure of all material facts necessary for assessment, notice under section 148 of the Act issued beyond four years from the end of relevant assessment year was barred by limitation under proviso to s. 147 of the Act, hence without jurisdiction. If either of these conditions is not fulfilled the notice is without jurisdiction. If the notice issued u/s 148 fails to satisfy either of the conditions, it deserves to be quashed. However, the officers have many time issued notices for reopening the assessments even beyond four years from the end of the assessment year without fulfillment of any of the legal conditions as stipulated in the first proviso to this section. Such an action of the revenue authorities is strictly challenged by the taxpayers at large in the court of law and courts have quashed the notice issued by Revenue authorities or quashed the re-assessment orders. Hon’ble Supreme Court affirmed the judgment of Hon’ble Allahabad High Court in the case Foramer vs. CIT (2001) 247 ITR 436 (All) wherein Hon’ble Allahabad High court has considered the issue as under: -
ITAs No. 2413/Mum/2017 “Having heard the learned counsels for the parties, we are of the view that these petitions deserve to be allowed.
It may be mentioned that a new section substituted section 147 with effect from 1-4- 1989. The relevant part of the new section 147 is as follows :
"147. Income escaping assessment.—If the Assessing Officer has reason to believe that any income chargeable to tax has escaped 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 recompute 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 four years from the end of the relevant
ITAs No. 2413/Mum/2017 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."
This new section has made a radical departure from the original section 147 inasmuch as clauses (a) and (b) of the original section 147 have been deleted and a new proviso added to section 147. 10. In Rakesh Aggarwal v. Asstt. CIT[1997] 225 ITR 4961, the Delhi High Court held that in view of the proviso to section 147 notice for reassessment under section 147/148 should only be issued in accordance with the new section 147, and where the original assessment had been made under section 143(3), then in view of the proviso to section 147 the notice under section 148 would be illegal if issued more than four years after the end of the relevant assessment year. The same view was taken by the Gujarat High Court in Shree
ITAs No. 2413/Mum/2017 Tharad Jain Yuvak Mandal v. ITO[2000] 242 ITR 612. In our opinion, we have to see the law prevailing on the date of issue of the notice under section 148, i.e., 20-11-1998. Admittedly, by that date, the new section 147 has come into force and, hence, in our opinion, it is the new section 147 which will apply to the facts of the present case. In the present case, there was admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso.
The learned departmental counsel relied on section 153(3)(ii) of the Act and submitted that there was no bar of limitation in view of the said provision. We do not agree. Section 153 relates to passing of an order of assessment and it does not relate to issuing of notice under section 147/148. Moreover, this is not a case where reassessment is sought to be made in consequence of, or to give effect to, any finding or direction contained in the order of the Tribunal in Boudier Christian's case. As already stated above, Boudier Christian's case related to ITAs No. 2413/Mum/2017 the employees of the company, whereas the impugned notice has been issued to the company. Hence, it cannot be said that the proposed reassessment in consequence of the impugned notice would be in consequence of, or to give effect to, any findings of the Tribunal in Boudier Christian's case.
A direction or finding as contemplated by section 153(3)(ii ) must be a finding necessary for the disposal of a particular case, that is to say, in respect of the particular assessee and in relevance to a particular assessment year. To be a necessary finding it must be directly involved in the disposal of the case. To be a direction as contemplated by section 153(3)(ii) it must be an express direction necessary for the disposal of the case before the authority or court vide Rajinder Nath v. CIT[1979]120 ITR 141 (SC); Gupta Traders v. CIT[1982] 135 ITR 5042 (All.); CIT v. Tarajan Tea Co. (P.) 236 ITR 4773 (SC) and CIT v. Goel Ltd.[1999] Bros.[1982] 135 ITR 5114(All.), etc. The case of an expatriate employee was to be decided on the basis of the provisions of article XIV of the treaty, whereas corporate income was to be decided on the basis of either article III or article XVI of the treaty or section 44BB. Hence, the ITAs No. 2413/Mum/2017 observation of the Tribunal in Boudier Christian's case was not a direction necessary for the disposal of the appeal relating to the petitioner. The eligibility of income of the petitioner from manning and management contracts was never an issue directly or indirectly involved in the case of Boudier Christian.
Moreover, the Tribunal in the appeal relating to the assessment of the petitioner's own case, vide Dy. CIT v. O.N.G.C. As agent of Foramer France[1999] 70 ITD 468 (Delhi), has considered the decision of the Tribunal in Boudier Christian's case. It is settled law that an appeal is a continuation of the original proceedings and, hence, when the Tribunal in the appeal relating to the petitioner has considered the decision of the Tribunal in Boudier Christian's case, the impugned notice under section 147/148 would obviously be on the basis of a mere change of opinion by the income-tax authorities, which would not be valid as held by the Supreme Court in Indian & Eastern Newspaper Society v. CIT[1979] 119 ITR 996 1 ;Gemini Leather Stores v. ITO[1975] 100 ITR 1 (SC) and Jindal Photo Films Ltd. v. Dy. CIT[1998] 234 ITR 1702(Delhi), etc.
ITAs No. 2413/Mum/2017 12. In the decision of the Tribunal in the assessee's own case O.N.G.C.'s (supra), it has been held that the income from the contract between the parties was business income and not fee for technical services.
Although we are of the opinion that the law existing on the date of the impugned notice under section 147/148 has to be seen, yet even in the alternative even if we assume that the law prior to the insertion of the new section 147 will apply, even then it will make no difference since even under the original section 147 notice for reassessment could not be given on the mere change of opinion as held in numerous cases of the Supreme Court, some of which have been mentioned above. Since the Tribunal in the appeal relating to the assessee-company had considered the Tribunal's earlier decision in Boudier Christian's case, it will obviously amount to mere change of opinion, and, hence, the notice under section 147/148 would be illegal.”
In view of the above facts of the present case and the judgment of Hon’ble Supreme Court in the case of Foramer France (supra), we quash the orders of the lower authorities and allow this issue of assessee’s appeal. As we have decided the jurisdictional issue only, and delete the orders of lower authorities by quashing the reassessment order, we
19 ITAs No. 2413/Mum/2017 refrain our self from adjudicating the issue on merits. Accordingly, the appeal of assessee is allowed. 11. Since, we have quashed the assessment on jurisdictional issue, we need not to go into the issue on merits raised by assessee vide grounds No. 2 and 3. 12. In the result, the appeal of assessee is allowed on jurisdictional issue. Order pronounced in the open court on 12-06-2019. (मनोज कुमार अग्रवाल / MANOJ KUMAR AGGARWAL) (महावीर स िंह /MAHAVIR SINGH) (लेखा दस्य / ACCOUNTANT MEMBER) (न्याययक दस्य/ JUDICIAL MEMBER) मुिंबई, ददनािंक/ Mumbai, Dated: 12.06.2019. स दीप सरकार, व.निजी सधिव / Sudip Sarkar, Sr.PS आदेश की प्रनिललपप अग्रेपिि/Copy of the Order forwarded to : अपीलाथी / The Appellant 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त(अपील) / The CIT(A) 3. आयकर आयुक्त / CIT 4. ववभागीय प्रयतयनधि, आयकर अपीलीय अधिकरण, मुिंबई / DR, ITAT, 5. Mumbai गार्ड फाईल / Guard file. 6. आदेशाि सार/ BY ORDER, त्यावपत प्रयत //// उप/सहायक पुंजीकार (Asstt.