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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
AadoSa / O R D E R महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
These cross appeals are arising out of the order of Commissioner of Income Tax (Appeals)-9, Mumbai [in short CIT(A)], in appeal No. CIT(A)- 9/Cir.4/61/2016-17, even dated 27.06.2017. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle-4(1)(1), Mumbai (in short ITO/ AO) for AY 2008-09 vide order dated 29.02.2016 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. At the outset, the learned Counsel for the assessee stated that the CO of the assessee contains jurisdictional issue, which is for challenging reopening of assessment under section 147 of the Act. Hence, we first take up the Cross Objection of the assessee for hearing. The assessee has challenged the reopening as bad in law as notice issued under section 148 of the Act is beyond 4 years and original assessment was completed under section 143(3) of the Act and there is no attribution by the Revenue for any failure of the assessee to disclose the material facts necessary for his assessment. For this assessee has raised the following four grounds: - “1. The Learned CIT(A) erred in confirming the reopening of assessment u/s.147 of the Income tax Act,1961 without appreciating that the notice issued u/s.148 dt.10/02/2015 is beyond the period of four years from the end of relevant Assessment year in 3 CO No. 44/Mum/2019 which the original assessment was completed. Thus, Reopening is bad in law.
2. The Learned CIT(A) failed to appreciate that the notice u/s.148 dtd.10/02/2015 was issued on the basis of Information received from DGIT (lnvt.), thus there was no independent application of mind by the A.O. It is simply based on borrowed satisfaction of some other authority; hence the reopening is bad in law and is liable to be quashed.
3. The Learned CIT(A) erred in confirming the order of the Assessing Officer without appreciating that the while completing the assessment the Assessing Officer neither disposed of the objection on legal issue nor dealt with merits.
The Learned CIT(A) failed to appreciate that notice u/s.148 dtd.10/02/2015 was issued on the basis of third party's statement recorded in the search and survey action, without providing a copy of the same or without discussing how the same was relevant to the appellant, hence the reopening is merely for making routing inquiry, therefore it is bad in law and is liable to be quashed.”
Briefly stated facts are that the assessee for the assessment year 2008-09 filed its return of income on 30.09.2008. The original assessment was completed under section 143(3) of the Act vide order dated 06.12.2010. The assessee is engaged in the business of shares and stock broking. Subsequently, the AO on the basis of information received from DGIT investigation Mumbai recorded the reasons and 4 CO No. 44/Mum/2019 reopened the assessment by issuing notice under section 148 of the Act dated 10.02.2015. The relevant reasons supplied by the AO and enclosed by assessee in its paper book at page 38 read as under: - Reasons for reopening Name of the assessee: M/s Arcadia Share and stock broker Pvt. Ltd. PAN AACCA8948E AY 2008-09 The assessee has filed the return on 30.09.2008 declaring total income at ₹ 30,09,71,472 Scrutiny assessment under section 143(3) was completed on 06.02.2010 on a total income of Rs. 30,20,90,280/- after making disallowance under section 14A amounting to Rs. 11,18,801/- and tax liability was determined at ₹ 3,42,48,796/- under section 115JB of the IT act. As per the information received from DGIT IV-II, Mumbai, the following transactions have been carried out by the assessee company during the AY 2008-09. Name of the Investor Amount Nature of Transaction Ansh Merchandise P Ltd. (Newplanet 2,500,000 Unsecured Loans Trading Co. P Ltd_) Ansh Merchandise P Ltd (New planet 5,000,000 Unsecured loans Trading Co. P. Ltd) Arthrv Business Private Limited (Faststone 5,000,000 Unsecured loans Trad (I) P Ltd) Duke Business P Ltd (JPK Trading I Pvt. Ltd) 5,000,000 Unsecured loans Mohit International 5,000,000 Unsecured loans Mohit International 5,000,000 Unsecured loans Mohit International 5,000,000 Unsecured loans The above named investor parties are entities being operated by Shri Pravin Kumar Jain Group wherein a search and survey action was conducted by DGIT (Inv.), Mumbai. It was found that this group was only providing accommodation entries through various companies operated by him including the above named companies.
5 CO No. 44/Mum/2019 Therefore the credits to the assessee shown above as unsecured loans have to be taxed, which have escaped assessment for AY 2008-09. Hence, I have reasons to believe that income chargeable to tax has escaped assessment for the aforesaid AY and the same need to be reassessed. N. Ashom Babu DCIT 4(1)(1), Mumbai 4. From the above reason the AO noted that the assessee has received accommodation entries from the entry operator Shri Praveen Kumar Jain and the details of which given in the reasons recorded above. Before the AO, the assessee explained that the above said amounts were received as margin money received from the parties which were subsequently retuned back in the subsequent year. It was explained by the assessee that the client code modification details have already been provided at the time of original assessment proceedings and the AO considering the details allowed the claim of the assessee by a speaking order. But the AO on the basis of information of DDIT that Shri Praveen Kumar Jain has stated that the assessee has indulged in obtaining accommodation entries aggregating to ₹ 3.25 crores in the nature of margin money from the above concerns and the assessee failed to prove the genuineness of the transactions, identity of the persons and creditworthiness of the persons and hence, he added the same under section 68 of the Act. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) on merits accepted the contentions of the assessee vide Para 5.36 as under: - “5.3.6 Thus, it has to be said that the appellant has demonstrated that it has satisfied all the 3 ingredients required to prove the satisfactory nature 6 CO No. 44/Mum/2019 of the loan transactions. On the basis of submissions made by the appellant it can be concluded that all the 3 ingredients having been satisfied, the impugned loans have to be treated as explained satisfactorily and the AO was not justified in having disregarded overwhelmingly supportive evidence. No cogent material was adduced by him to show that loans were unexplained. Therefore, keeping in view of the various judicial pronouncements as referred above, the impugned additions, made in the assessment order, has to fail on several counts such as - reliance on evidence that is totally inadequate; failure to make available any incriminating material (reports, statements etc.) forming basis for action by the AO; failure to give due opportunity to the appellant to cross examine witnesses, whose statement might have been relied upon and failure to recognize the satisfactory nature of the explanation /evidence tendered by the appellant to explain identity of creditors, creditworthiness of the creditors and the genuineness of the loan transactions. It has rebutted the observations of AO by point to point. Accordingly, in view of the above facts of analysis of the facts and documents on record, as well as judicial pronouncements including the judgements of jurisdictional High Court of Bombay as well as ITAT, Mumbai, it will be difficult to sustain the additions/disallowances made by the AO since 3 conditions prescribed for proving the cash credit were satisfied by the Appellant in the present case.
7 CO No. 44/Mum/2019 Therefore, the Assessing Officer is directed to delete the addition u/s. 68 of Rs.3,23,00,000/-.”
But held that the reopening is valid by observing in Para 5.3 as under: - “5.3 I have considered the facts of the case as well as assessment order passed by the AO & the submissions made by the appellant. a perusal of the assessment order shows that the AO was in receipt of information from the DGIT (Inv), Mumbai about the search and seizure action which was carried out in the case of Shri Praveen Kumar Jain on 1.10.2013. During the course of search, Shri Praveen Kumar Jain stated that through a web of concerns run operated and controlled by him was engaged in providing accommodation entries of various nature like bogus unsecured loans, bogus share application money, bogus sales etc. The AO concluded that the assessee was beneficiary and have taken accommodation entries in the garb of share application money/ share capital/ unsecured loan from the concerns run and controlled by Shri Praveen Kumar Jain. In view of the above information, the AO had reason to believe that income of the appellant has escaped assessment within the meaning of section 147 of the Act, 1961. Therefore, the validity of jurisdiction of the AO in respect of issuance of notice under section 148 to reopen the case cannot be challenged. Therefore, I uphold as the same has been validity issued by the Assessing Officer.”
8 CO No. 44/Mum/2019 Aggrieved, assessee came in cross objection and Revenue came in appeal on merits.
Before us, the learned Counsel for the assessee stated that admittedly, the assessee is engaged in the business of shares and stock broking and the returns for AY 2008-09 filed on 30.09.2008, which was assessed by the AO under section 143(3) of the Act by a speaking order vide dated 06.12.2010. Admittedly, the notice issued under section 148 of the Act dated 10.02.2015 is beyond 4 years and originally, the assessment was completed under section 143(3) of the Act. The learned Counsel for the assessee took us through the reasons recorded, which are reproduced above that there is no whisper in the reasons recorded by the AO that there is any failure on the part of the assessee to disclose all material facts i.e. the income of that assessment in the return of income. It was explained that the assessee’s case was selected for scrutiny by issuing notice under section 143(2) and 142(1) of the Act. The learned Counsel for the assessee referred to notice issued under section 142(1) of the Act dated 12.08.2009 issued during the original assessment proceedings, which is enclosed at assessee’s paper book at page 19 and 20 and relevant query raised vide its notice query No. 7 and the same read as under: - “7. Details of sundry creditors, security deposit, margin money and the other liabilities appearing under the head current liability with name and address briefly stating the reasons for liability.”
6. The learned Counsel for the assessee stated that this query was replied vide letter dated 06.08.2010 giving the following details: - “1. Letter of authority 9 CO No. 44/Mum/2019
Details of Regd office and Principal place of business.
3. Details of Directors. 4. Details of Bank Accounts maintained 5. Notes on business Activity. 6. Note on Client Margin 7. Details of TDS Deducted 8. Details of Sub brokerage payments more than ₹ 5 lacs. 9. Copy of Auditors Report, computation of Total income, Balance Sheet, Profit & Loss Account & Tax Audit Report.”
And, after verifying the complete details and confirmation from investing parties, leger accounts of the investee parties in the books of account and details of margin money which is as under: - Receipt Payment Name of the investor Date Amount Date Amount Ansh merchandise P 02/02/2008 2,500,000 31/01/2011 2,500,000 Ltd. (new Planet Trading co P. Ltd) Ansh merchandise P 31/01/2008 5,000,000 07/01/2011 2,500,000 Ltd. (new planet trading 12/01/2011 2,500,000 Co. P. Ltd) Artharv Business P. 31.01.2008 5,000,000 31/01/2011 5,000,000 Ltd. (Faststone Trading Co. P. Ltd) Duke business P. 24/01/2008 5,000,000 03/05/2008 5,000,000 Ltd. (JPK Trading I Pvt. Ltd) Mohit International 24/01/2008 5,000,000 18/01/2010 5,000,000 Mohit International 24/01/2008 5,000,000 05/02/2010 2,500,000 10 CO No. 44/Mum/2019 05/02/2010 2,500,000 Mohit International 29/01/2008 5,000,000 05/03.2010 2,500,000 26.03.2010 2,500,000 7. The AO framed the original assessment after satisfying himself about each and every detail. Now before us, the learned Counsel for the assessee assailed the notice issued under section 148 of the Act on the following: - “i. Notice dt. 10.02.2015 issued merely on change of opinion. There is no new material before the assessing office to form a belief that any income has escaped assessment. ii. Original assessment under section 143(3) was completed after proper application of mind and verification of the details on the relevant issue of margin money. iii. In the original assessment preceding the assessing officer enquired about the client margin money received from investors and same has been submitted along with explanation. iv. Merely on the basis of information of other searched parties addition cannot be made in the hands of assessee.”
The assessee has also filed note on client margin money and the same was filed during the course of original assessment proceedings and the same is being reproduced from the assessee’s paper book page 23 as under: - “5. Note on Business Activity.
11 CO No. 44/Mum/2019 Arcadia Share & Stock Brokers P Ltd is a private Limited Company, engage in the business of share broking and Share Trading on their own account.
The company is formed in the year 1995 to do the broking business. In the year 1995 company has acquired the membership of Bombay Stock Exchange (BSE).
Note on Client Margin The Broker has to collect the margin from the client before they enter into the buying or selling of any derivative contract on behalf of the client. In turn the broker has to make the margin payment to the exchange on upfront basis. Amount to of margin is depending upon the minimum percentage of buying/ selling as decided by the stock exchange time to time. The Broker has to collect the margin from the client in respect of daily settlement in accordance with the Clearing Corporation Regulations. Amount collected from the client towards daily margin is credited to Clients Margin Account.”
We have gone through the reasons recorded above and noted that there is no whisper about any failure of the assessee to disclose fully and truly all material facts necessary for his assessment for relevant AY 2008- 09 in regard to margin money received from clients. Admittedly, the assessee during the original assessment proceedings filed all the details before the AO and the AO framed the assessment under section 143(3) of the Act and reopening by issuing notice under section 148 of the Act is beyond four years. Here, it is to mention that this issue is squarely 12 CO No. 44/Mum/2019 covered in favour of assessee and against Revenue by the decision of Hon’ble Supreme Court in the case of CIT vs. Foramer France (2003) 264 ITR 566 (SC).
In the similar circumstances, Hon’ble Supreme Court in the case Foramer France (Supra) has taken the view that the first proviso to section 147 of the 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 13 CO No. 44/Mum/2019 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: - “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) :
14 CO No. 44/Mum/2019 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 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 15 CO No. 44/Mum/2019 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 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 16 CO No. 44/Mum/2019 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 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.) Ltd.[1999] 236 ITR 4773 (SC) and CIT v. Goel Bros.[1982] 135 ITR 5114(All.), etc. The case of an expatriate employee was to be decided on 17 CO No. 44/Mum/2019 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 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] 18 CO No. 44/Mum/2019 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.
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.”
19 CO No. 44/Mum/2019
11. 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 reverse the order of CIT(A) and quash the re-assessment proceedings and allow this issue of Cross Objection of the assessee. As we have decided the jurisdictional issue only, and set aside the order of CIT(A) affirming the reassessment order framed by the AO. Hence, we refrain our self from adjudicating the issue on merits and the Revenue’s appeal is academic and dismissed accordingly. The CO of the assessee is allowed.
In the result, the appeal Revenue is dismissed and the CO of the assessee is allowed.
Order pronounced in the open court on 21.05.2019. (एन. के. प्रधान/ NK PRADHAN) (महावीर ससंह /MAHAVIR SINGH) (लेखा सदस्य / ACCOUNTANT MEMBER) (न्याययक सदस्य/ JUDICIAL MEMBER) मुंबई, ददनांक/ Mumbai, Dated: 21.05.2019. दीप रकार, व.यनजी धिव / Sudip Sarkar, Sr.PS