GORIKA INVESTMENT AND EXPORTS PVT. LTD.,NEW DELHI vs. ITO, WARD- 10(2), NEW DELHI

Following grounds have been raised in this appeal: “1 That the learned Commissioner of Income Tax (Appeals)-35, New Delhi has grossly erred both in law and on facts in upholding the initiation of proceedings under section 147 of the Act and, completion of assessment under section 147/143(3) of the Act without appreciating that the same were without jurisdiction and hence deserved to be quashed as such. 1.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that there was no specific relevant, reliable and tangible material on record to form a "reason to believe'" that income of the appellant had escaped assessment and in view thereof Gorika Investment and Exports (P) Ltd. the proceedings initiated are illegal, untenable and therefore unsustainable. 1.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that reasons recorded mechanically without application of mind do not constitute valid reasons to believe for assumption of jurisdiction u/s 147 of the Act.

2. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in sustaining an addition made by learned Income Tax Officer of Rs. 15,00,000/- representing sum received from M/s Shalini Holdings Ltd. as share capital and erroneously held as unexplained cash credit under section 68 of the Act. 2.1 That while sustaining the aforesaid addition the learned Commissioner of Income Tax (Appeals) has completely overlooked that there was no adverse material brought on record by the learned Assessing Officer to assume that credits by way of share capital represents unexplained cash credit and. burden which lay upon the assessee in terms of section 68 of the Act had not been discharged. 2.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that once the aforesaid shareholder had duly confirmed the investment made, he could not have upheld the addition on arbitrary grounds and that too without bringing any evidence or even alleging that aforesaid credit by way of share capital emanated from the source of funds provided by the appellant company. 2.3 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the shareholder was a corporate entity, duly assessed to tax and, had subscribed to share-capital through banking channels and supported by necessary documents and therefore, Gorika Investment and Exports (P) Ltd. once such shareholder was identifiable company, share capital received could not in law or on fact be brought to tax u/s 68 of the Act. 2.4 That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that appellant had placed on record voluminous evidences in the shape of audited financial statement, annual returns, order of assessment of the share applicant to discharge the burden with regard to both genuineness of the transactions and creditworthiness of the share applicant and therefore, there in absence of any whisper to rebut the said evidence, the credit could not arbitrarily be regarded as unexplained cash credit under section 68 of the Act. 2.5 That further more the learned Commissioner of Income Tax (Appeals) has proceeded to confirm the addition on mere speculation, generalized statements, theoretical assumptions and allegations and assertions, without there being any supporting evidence and is therefore not in accordance with law. 2.6 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that alleged evidence gathered in the course of search of one Shri S. K. Jain without confronting the same to the appellant and, without affording any opportunity of cross-examination could not be made a basis to make an addition; particularly when even no nexus is established with the share capital subscribed by the shareholder in the appellant company. 3 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding an addition of Rs. 30,000/- on account of alleged commission paid to the entry provider in cash for obtaining accommodation entries and held as unexplained expenditure u/s 69C of the Act.

The main grievance of the assessee vide ground nos. 1 to 1.2 relates to the validity of the proceedings initiated by the AO u/s 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act).

Facts of the case in brief are that the assessee filed the return of income on 27.09.2009 declaring an income of Rs.42,156/- which was processed u/s 143(1) of the Act. Subsequently, the AO issued notice u/s 148 of the Act on 21.03.2016 after recording the reasons. The AO framed the assessment u/s 143(3) r.w.s. 147 of the Act by making an addition of Rs.15,30,000/- and assessed the income at Rs.15,72,156/-.

Being aggrieved the assessee carried the matter to the ld. CIT(A) and challenged the validity of the assessment completed u/s 147/143(3) of the Act and submitted that the AO did not have tangible material on record to form a reason to believe that the Gorika Investment and Exports (P) Ltd. income had escaped assessment and that the AO had initiated the proceedings mechanically without application of mind.

The ld. CIT(A), however, did not find merit in the submission of the assessee by observing that the Investigation Department is an integral part of the Income Tax Department and that in a systemic organization, the operations carried on by one limb of the organization are co-related to the functioning of the other limbs of the same organization. He further observed that the information given by the Investigation Department was forwarded to the assessment wings and that the AO decided to issue a notice after receiving such information lying before him. Accordingly, the action of the AO in initiating the proceedings u/s 148 of the Act was upheld.

Similarly, the ITAT Delhi Bench ‘E’, New Delhi in for the assessment year 2004-05 in the case of Metro Decorative Pvt. Ltd. Vs ITO, Ward-6(4), New Delhi (supra) vide order dated 24.10.2017 held as under: “6. We have carefully gone through the record, the documents and decisions relied upon by either side. In so far as the challenge of the assessee as to the legality and validity of the reopening is concerned, assessee is placing reliance on the decisions reported in G&G Pharma India Ltd. (Del. High Court) (supra), N.C. Cables Ltd. (supra) and Meenakshi Overseas Pvt. Ltd. (supra). He also placed reliance on the decisions reported in Signature Hotels Pvt. Ltd. vs. ITO 338 ITR 51 (Del), Sarthak Securities Co. Pvt. Ltd. vs. ITO (2010) 195 Taxman 262 (Del), CIT vs. Kamdhenu Steels & Alloys Ltd. (2012) 119 Taxmann.com 26 (Del.). As could be seen from these decisions, it is consistently held that the reopening based on the information furnished by the Directorate of Investigation and the AO without making any further Investigation on his own, recording the reasons to believe that income escaped assessment are bad. In fact in Pr. CIT vs. M/s N.C. Cables Ltd. (supra) above vide paragraph no. 10 the Hon’ble High Court extracted the reasons which are as follows: “10. As far as the first issue with respect to the approval granted to reopen the assessment under Section 147/148 of the Act is concerned, the relevant noting is as follows:- "Reasons for issuing notice u/s 148 of the Act in the case of M/s N. C. Cables Limited, for the A. Y. 2001-02-reg. Information has been received from the Investigation Wing of the Income Tax Department that the above named assessee is a beneficiary of accommodation entries received from certain established entry operators identified by the Wing during the period laundering for the beneficiaries and on the basis of investigation carried out and evidences collected, a report has been forwarded. I have perused the information contained in the report and the evidences gathered. The report provides details of the modus oparandi of the 'money laundering scam' and explain how the unaccounted money of the beneficiaries are ploughed back in its books of account in the form of bogus share capital/capital gains etc. after routing the same through the bank account (s) of the entry operators. Entry operators were identified after thorough investigation on the basis of definitive analysis of their identity, Gorika Investment and Exports (P) Ltd. creditworthiness and the source of the money ultimately received by the beneficiaries. These entry operators are found to be mostly absconding after the unearthing of the 'Money Laundering Scam' leaving the said money at the disposal of the beneficiaries without any associated cost or liability. In the instant case, the assessee is found to be the beneficiary of accommodation entry from such entry operators as per the following specific details of transaction:- Entry Beneficiary’s Amount Rs. Instrument Entry giving Account no. Operator Bank No. by which bank from which entry taken entry was and date given Mahesh Garg - 800480 30.11.2000 SBP-DG 4507 Performance - 700420 13.11.2000 SBP-DG 4281 Trading & Inv. Chintpurni - 900540 22.11.2000 SBP-DG 50058 Credits Subhash - 500300 23.11.2000 SBP-DG 4544 Chander Singhal Kuldeep - 500500 21546 Innovative 239 Textiles P. 24.03.2001 Wazipur ltd. Sweta Stone - 500500 23510 -do- 1200259- P. Ltd. 24.03.2001 CA Division - 500500 33612 -do- 225 Trading P. 24.3.2001 Ltd. During the course of the proceedings u/s 148 for the same assessment year, which Was dropped on the technical ground that proper sanction was not obtained, it was noticed that there are other receipts also from the identified entry operators. Information about those entries was not available in the data received from the Investigation Wing. Nevertheless they also fall within the ambit of section 68 of the Act. The assessee has received unexplained sums from the entry operators as per the above details as per information available with the undersigned. As explained above the identity, creditworthiness and genuineness of transactions with the persons found to be entry operators cannot be established. I therefore have reasons to believe that on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment for above AY the income chargeable to tax to the extent of accommodation entry mentioned above, has escaped assessment within the meaning of S.147 of the Act.

In the case on hand also the contention of the Revenue is that the assessee issued cash and received cheques from one Sh. Tarun Goyal, an entry operator. It is only on the basis of information furnished by the Directorate of Investigation Unit AO found the satisfaction that the income of Rs. 20,40,000/- had escaped the assessment due to the reason of failure on the part of the assessee to prove not only the identity of share applicants but also the capacity of such applicants and the genuineness of the transaction. The Hon’ble Jurisdictional High Court in Sarthak Securities Pvt. Ltd. vs. ITO (2010) 195 Taxman 262 (Del), Signature Hotels Pvt. Ltd. vs. ITO 338 ITR 51 (Del), CIT vs. SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del), Pr. CIT vs. G&G Pharma India Ltd. (ITA No. 545/D/2015) (Delhi High Court), ITO vs. N.C. Cables Ltd. (Delhi ITAT) – Judgment dated 22.10.2014 and Pr. CIT vs. Meenakshi Overseas Pvt. Ltd. (2017) (S) TMI 1428 held that the reopening of the assessment without the AO independently undertaking the exercise of examination of facts is bad under law.

The Jurisdiction Delhi High Court in the case of Pr. CIT vs. Meenakshi Overseas Pvt. Ltd. (2017)(S) TMI 1428 has held that reopening u/s 147/148 was not justified where reasons were recorded merely on the basis of information received from investigation using and without independent application of mind by the AO. The Hon’ble Court held that it was indeed a “borrowed satisfaction” and reopening was not justified.

Now coming to the second limb of challenge made by the assessee to the effect that the reassessment proceedings initiated are bad in as much as the approval/sanction by Addl. CIT is without recording satisfaction and the same is not in accordance with the requirements of Section 151 of the Act, Ld. AR brought it to our notice that vide sl. no. 11 the Addl. CIT, Range 6, New Delhi recorded that “Yes, I am satisfied”.

We have gone through the decisions relied upon by the Ld. AR. In the decision reported in CIT vs. M/s S. Goyanka Lime and Chemicals Ltd. (supra) it is held by the Hon’ble Madhya Pradesh High Court as follows: “7. We have considered the rival contentions and we find that while according sanction, the Joint Commissioner, Income Tax has only recorded so “Yes, I am satisfied”. In the case of Arjun Singh (supra), the same question has been considered by a Coordinate Bench of this Court and the following principles are laid down” – “The Commissioner acted, of course, mechanically in order to discharge his statutory obligation properly in the matter of recording sanction as he merely wrote on the format “Yes, I am satisfied” which indicates as if he was to sign only on the dotted line. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which also goes to indicate that the Commissioner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material.”

This decision of the Madhya Pradesh High Court was challenged by the Revenue before the Hon’ble Supreme Court by way of the Special Leave Petition and the Hon’ble Supreme Court was pleased to dismiss the Special Leave Petition vide order reported in (2015) 64 taxmann.com 313 (SC).”

In the present case also, it is not in dispute that the AO initiated the proceedings u/s 147 r.w.s. 148 of the Act on the basis of information furnished by the Directorate of Investigation Unit, which is evident from the aforesaid referred to nothings (copy of which is placed at page no. 27 of the assessee’s paper book) and Gorika Investment and Exports (P) Ltd. the Pr. CIT gave the approval without applying his mind in a slip- shod manner. Therefore, by respectfully following the judicial pronouncements in the aforesaid referred to orders and by keeping in view that the approval/sanction given by the Pr. CIT without recording satisfaction, I am of the view that the reopening in the present case is not sustainable. Therefore, the reopening u/s 147 of the Act by issuing the notice u/s 148 of the Act on the basis of mechanical approval by the Pr. CIT without recording satisfaction on the objective material is quashed.

In the result, appeal of the assessee is allowed. (Order Pronounced in the Court on 13/06/2018)