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Income Tax Appellate Tribunal, DELHI BENCH “C”, NEW DELHI
Before: SHRI R. K. PANDA & MS. SUCHITRA KAMBLE
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.
Facts of the case, in brief, are that the assessee is a company engaged in 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
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, I have reason to believe that income to the extent of Rs.2,00,00,000/- has escaped assessment on account of not disclosing true and correct facts by the assessee during the assessment proceedings.”
Accordingly, notice u/s 148 was issued to the assessee. The assessee 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.
4. During the course of assessment proceedings, the Assessing Officer 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 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.
Before the ld. CIT(A), the assessee apart from challenging the addition on 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 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.”
He, however, deleted the addition of Rs.2 crores made by the Assessing 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.”
Aggrieved with such order of the ld. CIT(A) the Revenue has filed the 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.
2. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in while directing to delete the said addition of Rs. 2 crores the Ld. CIT(A) erred in not following the ratio-decided in the judgments of Hon'ble Supreme Court and High Court including the jurisdictional one in the following cases, (i) Sumati Dayal Vs. CIT [80 Taxman 89 (SC)], (ii) T.P.Abdulla Vs. ACIT [207 Taxmann 24 (Kerala)], (iii) Nova Promoters & Finlease P. Ltd. [342 ITR 169 (Delhi)] and (iv) CIT Vs. N.R. Portfolio Ltd. [29 taxmann.com 291 (Delhi)].
3. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”
The assessee in his Cross Objection has raised the following grounds :-
“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.”
The ld. counsel for the assessee at the outset referred to page 4 of the 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.
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.”
Referring to the reasons recorded in the assessment order and reasons 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 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.
So far as merit of the case is concerned, he relied on the order of the ld. CIT(A).
The ld. DR on the other hand heavily relied on the order of the ld. 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 being in order should be upheld. So far as merit of the case is concerned, he relied on the order of the Assessing Officer.
We have considered the rival arguments made by both the sides and 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 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.
14. We find, following the above decisions the Hon’ble Delhi High Court in 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 (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 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.
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.
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.”
15. Similar view has been taken by the Hon’ble High Court in various other 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 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.
Since we are quashing the reassessment proceedings, the ground raised 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.
In the result, the Cross Objection filed by the assessee is allowed and the appeal filed by the Revenue is dismissed. Order pronounced in the open Court on this 31st July, 2018.