DCIT, NEW DELHI vs. M/S. ZECO AIRCON LTD., NEW DELHI

PER R. K. PANDA, AM : The appeal filed by the Revenue is directed against the order dated

15.07.2014 of the CIT(A)- XXI, New Delhi relating to assessment year

2005-06. The assessee has filed the Cross Objection against the appeal filed by

the Revenue. For the sake of convenience, the appeal as well as the Cross

Objection were heard together and are being disposed of by this common order.

the business of manufacturing of parts for Air-conditioning machines, erection

& assembling Air-condition system and some trading of some such parts. It

filed its return of income on 31.10.2005 declaring total income of

Rs.1,08,56,711/-. The assessment u/s 143(3) was completed vide order dated

20.12.2007 on a total income of Rs.1,08,86,710/- by adding an estimated

disallowance of Rs.30,000/- out of vehicle running expenses on account of non-

maintenance of logbook. Subsequently, the Assessing Officer reopened the

assessment u/s 148 by recording the following reasons :-

“Reasons recorded for re-opening the case of 147/148 of Income Tax Act. In this case assessee has furnished Income Tax Return declaring income of Rs.1,08,56,711/- and assessment was completed u/s 143(3) at Rs.1,08,86,711/-. The assessee company had received accommodation entries amounting to Rs.2 crores as under during the F.Y. 2004-05. S.No. Name of the party Amount Date of receipt 1. Sino Credit 10,00,000 22-02-2005 2. Champ Finvest 10,00,000 22-02-2005 3. Sino Credit 10,00,000 23-02-2005

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filed objection against such reopening which was disposed of by the Assessing

Officer by passing a speaking order. Thereafter, in response to notice u/s 143(3)

& 142(1), the assessee filed requisite details.

observed that information has been received from the Investigation Wing of the

Department that assessee, during the financial year 2004-05, has received

accommodation entries of Rs.2 crores from three different entities on 9 different

dates. The three different entities are Sino Credit & Leasing Ltd., Champ

Finvest Pvt. Ltd. and Vishrut Marketing Pvt. Ltd. which were controlled and

operated by Shri S.K. Gupta. He observed that during the course of survey u/s

133A on 20.11.2007, Shri S.K. Gupta, the controller of above said three

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companies had admitted in the statement recorded on oath to have given only

accommodation entries. Thereafter, on 26.12.2008 in assessment proceedings,

Shri S.K. Gupta under another statement on oath has stated that he is controlling

30 companies and except for some share brokerage other transactions of these

concerns/entities are not genuine. He further noted that Shri S.K. Gupta in his

petition filed before the Income Tax settlement Commission for assessment year

2008-09 had admitted an additional income of Rs.68,76,755/- as

commission/premium for providing accommodation entries through 32

companies to various beneficiaries. He, therefore, asked the assessee to

establish the identity, genuineness and creditworthiness of the loan of Rs.2

crores received by them during the year. Rejecting the various explanations

given by the assessee and relying on various decisions, the Assessing Officer

made addition of Rs.2 crores by invoking the provisions of section 68 of the I.T.

Act.

merit challenged the validity of the reopening of the assessment. However, the

ld. CIT(A) was not satisfied with the arguments advanced by the assessee on

account of reopening of the assessment and he upheld the reopening by

observing as under :- “3.3 I have considered the order of the AO and the submissions of the assessee and I do not find any merit in the submissions of the assessee. The AO had received the information about the accommodation entry and accordingly had recorded the

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reasons, supplied the reasons to the assessee and has also passed the order u/s 147 regarding the objection of the assessee and as such the AO has fulfilled all the condition and has followed the proper procedure u/s 147 and has redressed the grievance of the assessee regarding the reopening of the assessment. After considering all the facts and circumstances of the case, I am of the view that the AO has followed the proper law and procedure for reopening the assessment and accordingly the action of the AO is confirmed.”

Officer u/s 68 by observing as under :-

“4.3 I have considered the order of the AO and the submissions of the assessee and I find considerable merit in the submissions of the assessee. It is apparent from the above that the assessee had received the regular loans from three parties and the confirmations for the same were filed before the AO during the course of original assessment. The assessee had received the regular loans, had paid the interest after TDS and the loans were subsequently repaid and all the transactions are through account payee cheques and all the details were submitted before the AO vide Annexure-A. It is also apparent that the name of the assessee does not appear in the statement of the third party i.e. Shri S.K. Gupta vide a statement dated 20/11/2007 in question No.8 vide PB-1 Page-67 to 75 as discussed above. Even otherwise as per the general principle of law the AO is entitled to assess any income which is received by the assessee or has accrued to the assessee but in the present case no such income has been received by the assessee or has accrued to the assessee as the normal business loans received by the assessee has been repaid with interest after TDS as discussed above. After considering all the facts and circumstances of the case, I am of the view that the AO has not made out any proper case of escapement of income or concealment of income or even deemed income and as such it is difficult to sustain such additions on notional basis which has no legal footing and accordingly the addition made by the AO is deleted.”

appeal before the Tribunal by raising the following grounds :-

“1. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in deleting the addition of Rs. 2,00,00,000/- made by the AO u/s. 68 r.w.s 69A of I.T. Act, 1961 being accommodation entries received from Sino Credit & Leasing Ltd., Champ Finvest (P) Ltd. and Vishrut Marketing P. Ltd., shown as loans received without appreciating the fact that the giver of loan have admitted on oath before 3 different authorities i.e. Investigation Wing, Assessing Officer of those 3 companies and Settlement Commission, that it has only given accommodation entries.

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“1. That the Learned CIT (Appeals) XXI has grossly erred in facts and circumstances of the case in not quashing the assessment order passed pursuant to illegal assumption of jurisdiction under section 147/148 of the Act. 2. That the Learned CIT (Appeals) XXI has grossly erred in not holding that the issue of notice by the Assessing Officer under section 148 of the Act, was illegal and bad in law.”

Paper Book and drew the attention of the Bench to reasons recorded for

reopening of the case u/s 147/148 for assessment year 2005-06 which has been

supported to the case of the assessee and which reads as under :-

“OFFICE OF THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-18(1) ROOM NO.211A, CENTRAL REVENUE BUILDING. I.P. ESTATE, NEW DELHI-110002 F.No.-ACIT/Circle 18(1)/ND/2012-13 Date :18-10-2012 M/s. Zeco Aircon Ltd., 2nd Floor, DDA Shopping Complex, New Rajinder Nagar, New Delhi- 110001. Sir, Sub- Reasons recorded for re-opening the case u/s 147/148 of IT Act. Assessment Year 2005-06-reg. Refer to above mentioned subject.

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Reasons recorded for re-opening u/s 147/148 of the IT Act, 1961 in the case of M/s. Zeco Aircon Ltd. for the assessment year 2005-06 is as under :- Intimation has been received from the Investigation Wing, Delhi that assessee company has taken accommodation entries amounting to Rs.2 crores from following parties.

S.No. Name of the party Amount Date of receipt 1. Sino Credit 10,00,000 22-02-2005 2. Champ Finvest 10,00,000 22-02-2005 3. Sino Credit 10,00,000 23-02-2005 4. Sino Credit 10,00,000 23-02-2005 5. Vishrut Marketing 15,00,000 25-02-2005 6. Vishrut Marketing 15,00,000 25-02-2005 7. Vishrut Marketing 10,00,000 28-02-2005 8. Champ Finvest 10,00,000 28-02-2005 9. Champ Finvest 10,00,000 28-02-2005 10. Sino Credit 10,00,000 03-03-2005 11. Sino Credit 15,00,000 03-03-2005 12. Champ Finvest 10,00,000 05-03-2005 13. Sino Credit 15,00,000 07-03-2005 14. Sino Credit 25,00,000 19-03-2005 15. Sino Credit 25,00,000 23-03-2005 Total 2,00,00,000

Therefore, an amount of Rs.2 crores should have been treated as income of the assessee. Your submission on the above reasons for reopening shall reach this office within 7 days of receipt of this letter. Yours faithfully, Sd/- (A.N.V. IYER) Assistant Commissioner of Income Tax, Circle 18(1), New Delhi.”

supplied to the assessee, he submitted that there is variance in the language

used. He submitted that the Assessing Officer has initiated the reassessment

proceedings mainly on the basis of information received from the Investigation

Wing, Delhi. However, he has not applied his mind independently before

recording his satisfaction for reopening of the assessment. He submitted that

such reopening of the assessment at best can be called as reopening on

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borrowed satisfaction and there is absence of live link between the reopening of

the assessment and material on record. Referring to various decisions including

the decisions of the Hon’ble Delhi High Court in the case of Pr.CIT vs.

Meenakshi Overseas (P) Ltd. reported in 395 ITR 677, Pr.CIT vs. G&G Pharma

reported in 384 ITR 147, Pr.CIT vs. Sabh Infrastructure reported in 398 ITR 19

and Pr.CIT vs. RMG Polyvinyl (I) Ltd. reported in 396 ITR 5, he submitted that

the Hon’ble Delhi High Court in the above decisions has categorically held that

reopening of the assessment on the basis of report of the Investigation Wing

without independent application of mind by the Assessing Officer is invalid. He

accordingly submitted that since the assessment in the instant case has been

reopened on the basis of report of the Investigation Wing and there is no

independent application of mind by the Assessing Officer, therefore, the

reopening of the assessment u/s 147 is void ab-initio.

CIT(A).

CIT(A). He submitted that the Assessing Officer in the instant case after

recording the reasons and after fulfilling all the conditions as laid down for

reopening of the assessment has issued notice u/s 148. Therefore, the same

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being in order should be upheld. So far as merit of the case is concerned, he

relied on the order of the Assessing Officer.

perused the orders of the authorities below. We find the Assessing Officer

reopened the assessment on the basis of information received from the

Investigation Wing that the assessee has taken accommodation entries of Rs.2

crores from 3 concerns and, therefore, he has reason to believe that income to

the extent of Rs.2 crores has escaped assessment on account of non-disclosure

of true and correct facts by the assessee during the assessment proceedings. At

the outset, we find the reasons recorded for reopening of the assessment in the

body of the assessment order and the reasons that has been supplied to the

assessee are different. While in the reasons recorded in the assessment order,

the Assessing Officer has mentioned after the table that he has reason to believe

that income to the extent of Rs.2 crores has escaped assessment on account of

non-disclosure of true and correct facts by the assessee during the assessment

proceedings, however, in the reasons supplied to the assessee, the Assessing

Officer mentions that information has been received from the Investigation

Wing, Delhi that the assessee company has taken accommodation entries

amounting to Rs.2 crores from different parties and, therefore, the amount of

Rs.2 crores should have been treated as income of the assessee. A perusal of the

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reasons recorded in the assessment order as well as the reasons supplied to the

assessee show that there is no independent application of mind by the Assessing

Officer before recording the reasons and the same was based on the information

received from the Investigation Wing of the Income Tax Department. The

Hon’ble Delhi High Court in the case of Meenakshi Overseas (P) Ltd. (supra),

following the decision in the case of Signature Hotels Pvt. Ltd. vs. ITO reported

in 338 ITR 51 has held that in absence of independent application of mind by

the Assessing Officer to the tangible material which forms the basis of the

reasons to believe that income has escaped assessment, such reopening does not

satisfy the requirement of law. It has been held in the said decision that the

conclusion of the Assessing Officer is at best a reproduction of the conclusion in

the investigation report. Indeed it is borrowed satisfaction. The reasons failed

to demonstrate the live link between the tangible material and formation of the

reasons to believe that income has escaped assessment.

the case of RMG Polyvinyl (I) Ltd. (supra) has quashed the reassessment

proceedings on the basis of report of the Investigation Wing by observing as

under :-

“12. Recently, in its decision dated 26th May, 2017 in ITA No.692/2016 (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 and not

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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 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." 13. 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. 14. To compound matters further in the assessment order the Assessing Officer has, instead of adding a sum of Rs.78 lakhs, even going by the reasons for reopening of the assessment, added a sum of Rs.1.13 crores. On what basis such an addition was made has not been explained. 15. For the aforementioned reasons, the court is satisfied that no error was committed by the Income-tax Appellate Tribunal in holding that reopening of the assessment under section 147 of the Act was bad in law.”

decisions relied on by the ld. counsel for the assessee. Since the assessment has

been reopened on the basis of information received from Investigation Wing

and there is no independent application of mind by the Assessing Officer before

such reopening, therefore, following the decisions of the Jurisdictional High

Court cited (supra), we hold that such reopening of the assessment is not in

accordance with law. We, therefore, quash the reopening of the assessment

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made by the Assessing Officer and upheld by the ld. CIT(A). The ground raised

by the assessee in the Cross Objection is accordingly allowed.

by the Revenue challenging the order of the ld. CIT(A) deleting the addition

made by the Assessing Officer u/s 68 become academic in nature and, therefore,

the same is not being adjudicated.

appeal filed by the Revenue is dismissed. Order pronounced in the open Court on this 31st July, 2018.

Sd/- Sd/- (SUCHITRA KAMBLE) (R. K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 31-07-2018. Sujeet Copy of order to: - 1) The Appellant 2) The Respondent 3) The CIT 4) The CIT(A) 5) The DR, I.T.A.T., New Delhi By Order //True Copy// Assistant Registrar ITAT, New Delhi