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Facts
The assessee challenged the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, for AY 2012-13. The grounds of appeal included the invalidity of the assessment due to non-compliance with legal requirements, initiation of proceedings without independent application of mind by the AO, and mechanical approval by the Pr. CIT, particularly citing a non-existent section 147(b) for reopening. The assessee also contended that the reasons for reopening were not supplied in a timely manner.
Held
The Tribunal admitted the additional legal grounds and held that there was a clear non-application of mind by the Assessing Officer and the approving authority (Pr. CIT) as evidenced by the mention of non-existent sections (147(a)/147(b)) in the proforma for approval. Citing various High Court and Tribunal decisions, it rejected the revenue's argument that this was a mere clerical mistake curable under Section 292B. The Tribunal quashed the reassessment proceedings and the consequential order.
Key Issues
Whether the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, are valid if the Assessing Officer and the approving authority mechanically apply for and grant approval by citing non-existent provisions of law (Section 147(b)) and without proper application of mind; and whether delayed non-supply of reasons recorded for reopening vitiates the reassessment.
Sections Cited
147, 148, 151, 147(a), 147(b), 153C, 142(1), 143(2), 143(3), 292B, 131
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “SMC” NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD
आदेश /O R D E R This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi dated 03.06.2022 for the AY 2012-13. The assessee has raised the following grounds in his appeal: -
1. The impugned assessment is invalid and without jurisdiction as the said assessment is completed without complying with legal requirements of the provisions of section 147/148 of the Income Tax Act therefore such assessment is void ab initio and liable to be quashed.
1. 2. The Ld. AO has erred both in law and circumstances of the case in initiating action u/s 147 of IT Act ignoring the fact that the proceedings have been initiated without application of independent mind on the material, if any, available on Actionable Information Management System of ITD. In view of the above defects in the compliances the resultant reassessment proceedings are required to be set aside.
3. The Ld. AO has erred both in law and circumstances of the case in initiating action u/s 147 of IT Act ignoring the fact that the proceedings have been initiated by mechanical approval accorded by the Pr CIT, Rohtak and such approval vitiates the assessment.”
The Ld. Counsel for the assessee, at the outset, submits that the assessee in ground nos. 1 to 3 challenged the very validity of the reassessment proceedings initiated by the Assessing Officer (AO) u/s 147 of the Income Tax Act, 1961 as the impugned reassessment order passed by the AO is contrary to law, passed without application of mind. Ld. Counsel submits that the above three grounds i.e. 1 to 3 of grounds of appeal are additional grounds filed for the first time before the Tribunal being legal grounds and the assessee also filed a petition for admission to these additional grounds. Referring to the application for admission of additional grounds Ld. Counsel submits that failure to adopt these grounds as main grounds of appeal was neither willful nor deliver it and since these grounds are purely legal grounds and its adjudication does not requires any fresh investigation into facts, the same may be admitted and disposed off. Reliance was placed on the decision of the Hon’ble Supreme Court in the case of National Thermal Power Company Ltd. Vs. CIT (229 ITR 383) and Jute Corporation of India Ltd. Vs. CIT (187 ITR 688).
Ld. Counsel for the assessee referring to page 38 of the Paper Book which is the Form for recording the reasons for initiating proceedings u/s 148 and for obtaining approval of the Pr. CIT for reopening of assessment, submits that in column 7 of the said Form the AO has stated that the provisions applicable for reopening of assessment is section 147(b) of the Act. The Ld. Counsel for the assessee submits that the AO has quoted the non-existent provision for reopening the assessment which shows that there is complete non-application of mind. Ld. Counsel submits that the provisions of section 147(a)/147(b) have seized to be in statute book from 1.4.1989 and mentioning of these incorrect and non-existing sections is clearly a case of non-application of mind by the AO and also by the authorities providing sanction u/s 151 of the Act. The Ld. Counsel for the assessee submits that on identical facts the Tribunal in the case of Shyam Products Pvt. Ltd. Vs. ITO in dated 31.01.2023 has held that the reassessment order is bad in law. Ld. Counsel for the assessee further placed reliance on the following decisions to support the above contention:
Smt. Kalpana Shantilal Haria Vs. ACIT WP(L) No.3063/2017 dated 22.12.2017 (Bom),
2. Best Cybercity India P. Ltd. Vs. ITO (2019) 414 ITR 0385 (Del);
3. Omkam Developers Ltd. Vs. ITO dt 11.05.2021;
4. M/s VRC Township P. Ltd. Vs. ITO dt 14.10.2020;
5. M/s Maheshwari Roller Flour Mills P. Ltd. Vs. ITO dt 17.12.2020;
6. Madhu Apartments P. Ltd. Vs. ITO 3870/Del/2018 dt 01.02.2021.
4. Ld. Counsel further submits that the Assessing Officer did not supply reasons for reopening of assessment though the assessee vide letter dated 30.04.2019 requested for supply of reasons recorded for reopening of assessment. It is submitted that a reminder letter dated 09.09.2019 was also filed requesting for copy of reasons recorded but AO did not supply the reasons to the Assessee. Ld. Counsel submits that the assessee made compliance to notice issued u/s 148 by e-filling the return of income on 29.04.2019 (PB 11) and intimated the Ld. AO vide letter dated 30.04.2019 (PB 43). In the above letter, the reasons for reopening were requested to be provided. The Ld. AO vide notice u/s 142(1) dated 28.08.2019 in item No.10(2) therein informed the appellant assessee that reason for reopening was enclosed. However, from the screenshot (PB 48), there was no such attachment enclosed with the above notice. The assessee vide letter dated 09.09.2019 (PB 50) informed the Ld AO that the reasons were not enclosed with the above referred notice and fresh request was made for supply of reasons recorded. Till the time of completion of assessment, the reason was not provided by the Ld. AO. The above fact can be verified from the digital order sheet available on page 98-100 and also from the notices u/s 142(1) of IT Act dated 16.10.2019 (PB 51-52) and 18.11.2019 (PB 53-55).
The perusal of above will show that nowhere the Ld AO has provided the reason for reopening which were ultimately obtained from the Ld AO after completion of assessment vide letter dated 03.10.2023 (PB 34).
5. Ld. Counsel for Assessee further submits that the assessment in the present case was completed without providing the above documents which the AO was under obligation to provide in view of the decision of Hon'ble Apex Court in the case of GKN Driveshaft India Ltd vs /TO 259 ITR 19 (SC) and decisions of Jurisdictional Delhi High Court in the case of M/s Sabh Infrastructure Ltd. vs ACIT 398 ITR 198 (Del) and M/s Haryana Acrylic Manufacturing Co. vs. CIT and Anr 308 ITR 38 (Del.) and also decision of Hon’ble Bombay High Court in the case of M/s Allana Cold Storage Ltd vs ITO 287 ITR 1 (Bom) . Further reliance is also placed in the decisions cited hereunder: • PCIT v Jagat Talkies Distributors [2017] 85 taxmann.com 189(Delhi); • PCIT v V. Ramaiah [2019] 103 taxmann.com 201 (Kar) approved in 103 taxmann.com 202(SC);
• CIT vs M/s Trend Electronics [2015]61 taxmann.com 308( Bom); • CIT v Videsh Sanchar Nigam Ltd. (340 ITR 66) (Bom); • CIT v. Fomento Resorts and Hotels Ltd. of 2006 dated 27th November, 2006 (Bom) has been dismissed by the Apex court, vide order dated July 16, 2007; • KSS Petron Private Ltd vs. ACIT of 2014 Dated 03.10.2016 (Bom); • CIT vs. IDBI Ltd ITA No.494 of 2014 Dated 19.09.2016 (Bom); • CIT v. Blue Star Ltd. (2018) 162 DTR 302 / 301 CTR 38 (Bom) (HC); • Nandlal Tejmal Kothari Vs. ACIT (1998) 230 ITR 943 (SC); • Inderjeet Singh Sachdeva vs. DCIT [2017] 49 ITR(T) 1 (Delhi) (Trib); • Ujagar Holdings Pvt. Ltd. vs ITO 51 ITR(T) 343 (Delhi) (Trib); • Sh. Balwant Rai Wadhwa Vs ITO in ITA 4806/Del/2010 dated 14.01.2011;
• Sahkari Khand Udyog Mandal Ltd ACIT 370 ITR 107 (Guj) approved in SLP (C) No.008189/2016 (SC) dt: 18.03.2016; • Karan Khurana v. ITO (2021)92 ITR 114 (Delhi) (Trib.) (Copy enclosed)
6. On the other hand, the Ld. DR strongly supported the orders of the authorities below. Ld. DR further submits that no violation of law has been done in the said case. The action has been taken as
per Income Tax Act. The content of the said para are not agreed to.
Notice u/s 148 of the Income Tax Act, was issued to the assessee after getting the prior approval of competent authority. Further it is submitted that this office has necessary pecuniary and territorial jurisdiction to entertain the case. Further the case is well within period of limitation as per the Income Tax Act, 1961.
On hearing both the parties and after going through the additional grounds raised by the assessee, I am of the view that these grounds are purely legal grounds and, therefore, the same are admitted following the above decision of the Hon’ble Supreme Court in the case of National Thermal Power Company Ltd. Vs. CIT (187 ITR 688).
8. Heard rival submissions, perused the orders of the authorities below. Undisputedly in this case there is non-application of mind by the AO in taking approval from the appropriate authority u/s 151 of the Act. Perusal of Form for recording the reasons for initiating proceedings u/s 148 and for obtaining approval of the Pr. CIT, Delhi-8, New Delhi which is placed at Paper Book page 38 suggests that the AO mentioned the provisions under which the assessment was reopened as 147(b) of the Act. It is observed that the provisions of section 147(a)/147(b) have seized to be in the statute book from 1.4.1989. Therefore, mentioning all these incorrect and non-existent sections for obtaining approval for recording the reasons for initiating proceedings u/s 148 is a clear case of non- application of mind by the AO and also by the authorities providing satisfaction u/s 151 of the Act.
9. I find that on identical fact situation the Tribunal in the case of Shyam Products P. Ltd. Vs. ITO in dated 31.01.2023 the Tribunal held as under: -
“7. On perusal of the order of the Tribunal in assessee’s own case for the assessment year 2010-11 the Tribunal after considering various judgements held that there is non-application of mind by the Assessing Officer while filling up the proforma for obtaining the approval from Commissioner under section 151 of the Act and the ld. CIT also has granted approval in a mechanical manner. The Tribunal observed that in the Form for recording the reasons for initiating proceedings under section 148 for obtaining approval of the Pr. CIT, column 7 i.e. the provisions under which the re-opening was sought for are applicable has been mentioned as section 147(b) and the 8 provisions of section 147(b) are non-existent in the statute book for the assessment year 2010-11. Therefore, the co-ordinate bench of the Tribunal came to the conclusion that there is complete non-application of mind by in obtaining the approval from Pr. CIT and in similar manner the approval was granted by Pr. CIT. While coming to such conclusion the Tribunal referred to various decisions and held as under:- 2. First of all, I have heard the arguments of both the representatives on legal ground No.3 of the assessee which reads as under:- “3. The Id. CIT(A) has erred on facts and in law in upholding the impugned order of the learned assessing officer which is contrary to law, passed without application of mind and without complying with the procedure and rules, is against equity and justice and facts of the assessee and material on record.”
3. The written submissions of the assessee on this ground reads as follows:- “Ground No.3 In this ground, the appellant is challenging the validity of reassessment proceedings on the following specific issues: I. Invocation of reassessment proceedings based on Non- existing provision of law and also errors contained in the performa: Non application of mind is discernable from the performa (PB 18) filed by the AO to take approval from the appropriate authority u/s 151. In question in item No.7 which says “Whether the provisions of section 147(a) or 147(b) are applicable or both the sections are applicable. The Assessing Officer in the reply mentions section 147(b) applicable. Here it may be appreciated that the sections 147(a)/147(b) have ceased to be in the statute book from 01.04.1989. The mentioning of these incorrect and non-existing sections is a clear case of non- application of mind by the Assessing Officer and also by the authorities providing satisfaction under section 151. Reliance is placed in the decisions of Smt Kalpana Shantilal Haria Vs ACIT W.P.(L) No.3063/2017 dated 22.12.2017 (Bom), Best Cybercity India P Ltd vs ITO (2019) 414 ITR 0385 (Del), Omkam Developers Ltd vs ITO dt. 11.05.2021, M/s VRC Township P Ltd vs ITO 2017 dt: 14.10.2020, M/s Maheshwari Roller Flour Mills P. Ltd vs ITO ITA No.4257/Del/2019 dt: 17.12.2020 and Madhu Apartments P. Ltd vs Income Tax Officer ITA Nos. 3869- 3870/Del/2018 dated: 01.02.2021. II. On applicability of invocation of sec 153C of IT Act
The jurisdiction u/s 147 was assumed on the basis of various incriminating documents found and seized in the course of search on Sh S.K. Jain and his brothers (PB 19- 33) as per observations in the reason recorded. It is also mentioned in reason that from verification of documents seized in above search it clearly appears that assessee has taken accommodation entries from the entities of Sh S.K. Jain group in lieu of cash. This fact is evident from the following observations in the reason recorded:
1. 1. In para 4 to 7 (PB 20-21), there is discussion of seizure of incriminating material from Sh S.K. Jain group from which it is found that the said searched group was involved in providing accommodation entries.
2. Further, there is specific reference in para 10 (PB 21- 22) and para 14-15 (PB 25-26) various seized material has been discussed which includes Annexure A-150 pages 1- 13 (PB 26) and other details showing amount of commission and payments to various middlemen in consideration of accommodation entries by them.
3. In para 10 sub para vi (PB 22), there is mention of daily cash book, cheque books seized from Sh S.K. Jain whereby details of cash received from various beneficiaries companies/person through various middleman/agents in lieu of accommodation entries provided to them on various dates have been recorded.
4. There is reference to the seized records elsewhere in the reason particularly in para 18 and 18.1 page 27 and para 21 at page 31 also which led the AO to form a prima facie view of escapement of income chargeable to tax.
5. From these discussions, it is evident that the AO had no material to initiate action u/s 147 except for the material relating to the appellant found in the course of search on above named individuals. Under section 153C(1) (b) of IT Act, the power to take cognizance of the material seized from third party, need be exercised under this section only ruling out action under other provisions of the Act. With effect from scope of sec 153C was enlarged to bring in its ambit the cases where the material seized pertains to or any information contained therein relates to the person other than the person searched. Due to non-obstante clause in sec 153C(1), the authorities are bereft of the powers under other sections of the Act including sec 147/148 of the Act. Recently, on the exactly identical facts where reassessment proceedings, based on the seized material from Sh S.K. Jain Group initiated u/s 147/148 of IT Act, were quashed in view of Section 153C being independent code in the decisions of M/s City Life Projects P Ltd M/s. Saurashtra Color Tones Pvt. Ltd. v. ITO dt 22.01.2020 (SMC) relying on Shri Adarsh Agrawal v. ITO 2020 ITA NO.777/DEL/2019 dt: 14.01.2020 (DB) and also the decision in Nawal Oils & Containers P Ltd v ITO ITA No852/Del/2019 dated04.03.2020 (SMC). In view of these, the action taken by the u/s 147/148 is in clear violation of sec 153C of the Act.
6. The appellant has raised the above objection before Ld AO in objection to assumption to jurisdiction u/s 147 on 29.08.2017 (PB 65-70) in para 4 (PB 67-69) and same is rejected by the Ld AO vide order dt: 26.09.2017 (PB 48- 54) with the observation on page 49 wherein action u/s 148 is justified on the ground that it is not a case of search on the assessee.
III. Initiation of proceedings at the behest of other authority: From the copy of the information provided by the AO at page 37-46, it can be seen that DDIT Investigation has given a dictate to the CIT, Delhi-Ill, New Delhi to issue notice u/s 148 in the cases reported by the Investigation wing where jurisdiction lies in the charge of CIT. From the subject given in the above information, there is a clear direction to the AO which is also emphatically repeated till para 2 also. In addition to the above dictate, the CIT vide its binding direction dt: 15.03.2013 directed the AO’s working in his charge to take immediate action in respect ot AY 2006-07 getting time barred on 31.03.2013 as noted in the table as TB cases. Consequent to above direction of the DDIT dt: 12.03.2013 and the consequent binding instruction of CIT dt: 15.03.2013, the AO initiated action by recording undated reasons for which approval was granted on 21.03.2017. From the above discussion, it is evident that the above direction is the trigger point for initiating action u/s 148 and therefore it can be inferred that there is a satisfaction of authority other than the AO resulting into reopening of the case. This is against the provisions of sec 147 which lay down that it is the AO whose satisfaction is sine qua none for valid initiation of reassessment proceedings. In Green World Corporation (supra) (SC) held that Notices issued pursuant to the direction by the Pr. CIT thereto would be bad in law. Further In CIT v. SPL's Siddhartha Ltd. [2012] 345 ITR 223 (Del), relying on Sheo Narain Jaiswal & Ors. Vs. ITO, 176 ITR 35 (Pat.), held: ‘Where the Assessing Officer does not himself exercise his jurisdiction under Section 147 but merely acts at the behest of any superior authority, it must be held that assumption of jurisdiction was bad for non- satisfaction of the condition precedent.’ In the case of Munjal Showa Ltd vs Dy CIT & Anr WP.(C) 1707/2014 DT: 22.02.2016, the Hon’ble Delhi High Court has quashed the reassessment proceeding relying the decision on Lahmeyer Holding GMBH v. Deputy Director of Income Tax 375 UR 70 [Del) where the AO was acting on the direction of the CIT in terms of the instructions of the CBDT. IV. Assuming jurisdiction to complete assessment u/s 143f3V147 bv issue of notice u/s 143(21 of IT Act on the date of supply of reasons thereby debarring appellant to appellant to file objection to assumption to jurisdiction: The appellant vide letter dt: 05.04.2017 (PB 15) requested the AO to provide certified copy of the reason and the Ld AO provided the reasons along with notice dt: 23.06.2017 issued u/s 142(1)/143(2) of IT Act (PB 34). The fact of issue of notice u/s 143(2) on 23.06.2017 is mentioned in assessment order in para 2 at page 2 therein. From above facts, it is evident that the AO assumed jurisdiction by issuing notice u/s 143(2) of the Act on 23.06.2017 at the time of supplying reason which means that the AO assumed jurisdiction to make reassessment before allowing appellant to file objection to assumption to jurisdiction. Hence, assuming jurisdiction by issuing notice 143(2) before allowing appellant to file objection and subsequent disposal off the same is nothing but non-application of mind by the AO to the legal requirements of the law. It may be noted that the Hon’ble Gujarat High Court has provided guidance to tax authorities in case of Sahkari Khand Udyog Mandal Ltd vs ACIT 370 ITR 107 (Guj) held that AO must provide suo moto reason to the assessee within 30 days of filling of return of income and the assessee must file objections within 60 days and thereafter the AO can take 4 months time in disposing off objection. This guidance of the Hon’ble Gujarat High Court has been approved by the Hon’ble Supreme Court wherein the SLP of the department has been dismissed. Therefore, issue of notice u/s 143(2) at the time of supply of reasons amounts to denial of opportunity to the appellant to take legal remedy available under the Act of filling of objection on assumption of jurisdiction. To support the above proposition of law, reliance is placed in the decision of Mastech Technologies Pvt Ltd vs Dy CIT WP© 2858/2016 dt: 13.07.2017 (Del) where in para 30 of the judgment held that issuance of notice u/s 142(1) 1143(2} before supplying the reasons and considering petitioner objection and passing reasoned order thereon does not meet requirement of law. Such legal infirmity leads to inevitable invalidation of all the proceedings that took place pursuant to notice u/s.
Recently, the co- ordinate of Hon’ble Delhi ITAT in case of M/s R N Khemka Enterprises P Ltd vs ITO in dt: 12.08.2021 has quashed the reassessment proceedings on similar grounds. Kindly refer para’s 33 to 35 at internal page 51-53 therein. V. Mechanical Approval Granted by Pr CIT The exercise of approval u/s 151(1) of IT Act by the Ld Pr CIT, Delhi-8, New Delhi appears to have been ritualistic and formal rather than meaningful, which goes against the rationale of the safeguard of approval by a higher- ranking officer provided in the Act. Inconsistencies and omissions pointed in preceding para's in support of ground on non application of mind are the glaring mistakes committed by the AO and non-pointing out such omissions by the approving authority and resulting non-correction of the same, before the approval was accorded, shows that the said authority have acted mechanically in granting sanction u/s 151 of the Act. Such mechanical approval was found to be fatal for validity of the reassessment proceedings as decided by the co-ordinate Hon'ble Delhi Bench in the RMP Holdings P Ltd dt: 31.07.2020 wherein it was held that both AO and approving authorities have acted mechanically ignoring the glaring mistakes in the reason recorded showing non application of mind by the reason recording authority where the decision of Delhi High Court in the case of Sonia Gandhi 407 ITR 594 (Del) has been distinguished. Reliance is also placed on the decision of M/s Synfonia Trade/inks P Ltd vs ITO W.P.(C) No. 12544/2018 dt: 26.03.2021 (Del) has quashed the reassessment proceeding based on mechanical approval granted by approving authority
Further, reliance is placed on the following authorities: a. Chhugamal Rajpal vs. S.P. Chaliha & Ors. - 79 ITR 603 (SC); b. Arjun Singh vs Asstt. Director of Income Tax (M.P.) reported in (2000) 246 ITR 363 (MP); c. CIT vs M/s S.Goyanka Lime and Chemicals Ltd 231 Taxman 0073 Dated 15.10.2014 (MP) approved by Hon'ble Supreme Court in 64 taxmann.com 313 (SC). d. Pr. CITvs. N. C. Cables Ltd 391 ITR 11 (Del)
AND 22 e. Maruti Clean Coal& Power Ltd Vs ACIT WP(T) No.346 of 2017 Dated 03.01.2018 (Chattisgarh High Court); f. German Remedies Ltd. vs. Dy. CIT (2006) 287 ITR 494 (Bom); g. United Electrical Company PLtd. vs. CIT & Ors(2002) 258 ITR 317(Del)"; h. Central India electric Supply Co. Ltd. Vs .ITO, 333 ITR 237 (Del); VI. Assumption of jurisdiction based on invalid issue of notice u/s 148: From perusal of notice u/s 148 (PB 14), it can be seen that notice u/s 148 has been issued in the name of the artificial juridical entity without addressing the name of incumbent compliant. Therefore, issuance of notice in the name of the company instead of the name of the principal officer of a company makes the notice bad in law as per the ratio of the decision of the Calcutta High Court in the case of Rama Devi Agrawal Vs. CIT reported at 117 ITR 256 [Calcutta] and the decision of the Hon'ble Allahabad High Court in the case of Madan Lai Agrawal Vs. CIT reported at 144 ITR 745 [All]. On similar facts, mentioned in the reason recorded, the Hon'ble ITAT in Shree Balkishan Aggarwal Glass Industries P Ltd in ITA No.l523/Del/2014 in para 22 at page 18 has quashed the reassessment proceeding”
Briefly reiterating the written submissions of the assessee, the ld. AR submitted that the invocation of reassessment proceedings based on non-existing provisions of the law clearly shows that it is a clear case of non-application of mind by the AO and also by the authorities provided the approval u/s 151 of the Act. Reliance in this regard has been placed on the decisions of Smt. Kalpana Shantilal Haria vs. ACIT W.P (L) No.3063/2017, order dated 22.12.2017 (Bom); Best Cybercity India P. Ltd. vs. ITO (2019) 414 ITR 385 (Del); Omkam Developers Ltd. vs. ITO, order dated 11.05.2021; M/s VRC Township P. Ltd. vs. ITO, dated 14.10.2020; M/s Maheshwari Roller Flour Mills P. Ltd. vs. ITO, ITA No.4257/Del/2019 dated 17.12.2020; and Madhu Apartments P. Ltd. vs. ITO, ITA Nos.3869-3870/Del/2018, order dated 01.02.2021. Therefore, the ld. AR submitted that impugned reassessment proceedings and reassessment order may kindly be quashed as proposition rendered by above noted orders including order of coordinate Bench of ITAT Delhi in the case of Omkam Developers Ltd. (supra).
The ld counsel also pointed out that the AO has not assumed valid jurisdiction to pass reassessment order u/s 143(3) r.w. section 147 as the notice u/s 143(2) of the Act was issued on the very same date when the copy of the reason was supplied to the assessee, thereby debarring the assessee to file objections to assumption of jurisdiction. The ld. Counsel submitted that recently, the coordinate Bench of the ITAT in the case of M/s R.N. Khemka Enterprises P. Ltd. vs. ITO in order dated 12.08.2021 has quashed the reassessment proceedings on similar grounds. Therefore, the reassessment proceedings and impugned reassessment order may kindly be quashed. The ld. Counsel also submitted that the Hon’ble High Court of Gujarat in the case of Sahkari Khand Udyog Mandal Ltd. vs. ACIT, 370 ITR 107 (Guj) held that the AO must provide suo moto reason to the assessee within 30 days of filing of return of income and the assessee must file objections within 60 days and, thereafter, the AO can take four months time in disposing of objections. He 16 further informed that the SLP filed by the Department has been dismissed by the Hon’ble Supreme Court against the said order of the Hon’ble Gujarat High Court.
The ld. AR submitted that in view of the above, the issue of notice u/s 143(2) of the Act at the time of supply of reasons amounts to denial of opportunity to the appellant to take legal remedy available under the Act of filing of objection on assumption of jurisdiction for initiation of proceedings and passing reassessment order. The ld. AR has also placed reliance on the decision of the Hon’ble Delhi High Court in the case of Mastech Technologies Pvt. Ltd. vs. DCIT in WP(C) 2858/2016, dated 13.07.2017 and submitted that the issuance of notice u/s 142(1)/143(2) before supplying the reasons and not considering petitioner’s objection and passing reasoned order thereon does not meet requirement of law.
7. The ld. Sr. DR supported the impugned reassessment order as well as first appellate order and submitted that the mention of non-existent provision of section 147(b) of the Act is a clerical mistake which is curable under section 292B of the Act.
On careful consideration of the rival submissions, from the order of the coordinate Bench of ITAT in the case of Omkam Developers Ltd. (supra), I observe that in the similar set of facts and circumstances, similar legal contention was placed before the ‘E’ Bench which was adjudicated as follows:- “10. We have heard rival submission of the parties on the issue in dispute raised in the cross appeals. As far as ground No. 1 of the appeal of the assessee is concerned, the assessee has challenged the validity of the reassessment proceeding on the ground that approval for issue of the notice under section 148 of the Act was granted by the LearnedPr.CIT in a mechanical manner and without application of mind and, therefore, reassessment proceeding must be quashed. For adjudicating this issue, the reasons recorded by the Assessing Officer and relevant proforma of approval granted by the Pr. CIT are reproduced as under: "Reason for the belief that income has escaped assessment in the case of M/s, Omkam Developers Pvt. Ltd. A.Y. 2009-10 (Pan:AAACQ5036B) 1. Name & Address of the Assessee : M/s Omkam Developers Ltd, 702, Arunachal Building, 19, Barakhamba, Road, Connaught Place, New Delhi 2. Assessment Year 2009-10 3. Financial Year 2008-09 4. PAN AAACO05036B PUC is a proposal for reopening the case under section 147 of the Act for the A.Y 2009-10 in the prescribed Performa. The information received from ADIT (Inv ), Unit-3(4), Kolkata vide his letter dated ADIT/U-3(4)/FIU- IND/MJS/15-16/4l1 dated 22.06.2015.wherein it is mentioned that; in the suspicion transaction report of 1000010583 in the name of Manohar Jaykishan Shah was received and it was reported in the I said FIUIND-STR No. 1000010583 that there were 311 linked entities amongst whom fund transfers were made and in few accounts there were deposits also. In pursuance to the said report. Bank Statements of various entities have been obtained and on investigation, it has been noticed that Omkam Developers Pvt. Ltd (Pan AAACO5036B] was one of the beneficiaries during the F.Y 2008-09 relevant Assessment Year 2009-10 and the amount brought through I accommodation entries by the above mentioned company is Rs.193.00 Lakhs. Copy of the Status Report in the case of Manohar Jay kishan Shah in connection with FIU-IND-STR No.1000010583 is reproduced below:- A. Background :
• One Suspicious Transaction Report was received in the month November, 2009 from FIUIND. In the said report, 31 related accounts were reported out of which 12 accounts were found to be associated, with business of Metal Trading Wherein Mr. ManoharJaykishan Shah is a Proprietor/Signatory. There are other 19 outstation Branch Accounts which are linked/connected to main 12 accounts and having non-related business/not in the same line of business accounts. During the financial year 2008-09, high, value cheques totaling around Rs. 2030 crore are deposit at outstation branches in these accounts. Subsequent to which on realisation of high value credit amount, debit internal transfertransaction of large value and in round figures has been, transacted within connected group/linked accounts. The cumulative turnover In 31 accounts discussed was reported tobe 673 crores. B. VERIFICATION OF FACTS AND INVESTIGATIONS DONE:
To verify in the STR, the Bank Accounts of all 31 accounts mentioned in the STR were requisitioned from the Bank and scrutinized. The 31 Bank accounts- were opened at different, branches of the Development Credit Bank. The following, facts emerged from the scrutiny of Bank Accounts: I. There were 7 Bank Accounts belonging to 6 entities in which cash of Rs. 15.26 crore was deposited in the F.Y.-2008-09: The cash deposited were swiftly Transferred to other entities through Cheques/RTGS. These-6 entities are proprietorships. The detail is given as per Annexure-C. The funds from other entities through Cheques/RTGS were also received in these accounts. The details of another 21proprietorships given are STR is as per Annexure-C1.
II. II. The find from the entities mentioned in Annexure-C and C1 were transferred to a number of entities which are mostly entities already identified as the companies controlled by the entry operators, few of them have been listed in Annexure-1.
III. The fund was rotated among the entities detailed in Annexure-C, C1 and Annexure-1 ]
IV. There were 6 Bank Accounts Belonging to 6 Companies in which funds were received from mostly entities discussed in Annexure-C, C1 and Annexure-1 and the same was swiftly transferred to the other entities (Mostly Companies). The details of 6 such companies are given in Annexure -5
V. The fund was transferred to the entities which are the real beneficiary of the funds from the companies mentioned in Annexure-S. The details of such, companies are given in Annexure -B.
Modus operandi of providing accommodation entry
The summons u/s 131 were issued to the individuals and entities mentioned in the STR. The field verification from the inspector was also done. In most of the cases either the summons could not he served or there was no compliance, The facts of immediate source of the beneficiaries being shell companies have already been established and recorded u/s 131 of the Income Tax Act-1961 during the investigation in other cases. The fact as also corroborated by the noncompliance to the summons as well as nonexistence of real business of most of the entities mentioned in Annexure-C, C1 and l and S.
Flow Chart of Cash Flow
Cash deposit in proprietorship Layering of funds through dummy Proprietorships and Shell companies Fund transfer to Shell/Paper Company Fund to the Beneficiaries Conclusion
(i) In retrospect it can be rightly conceded that, the beneficiary companies have introduced n cash in primary accounts discussed in Annexure- C and s symbolized by various companies (created for the purpose re-1, Annexure-S) operated by entry operators by entry operators, the unaccounted funds have been entered In the regular books of accounts of the beneficiary companies.
(ii) in view of the above, the total amount which has been transferred to the beneficiaries or the recipient companies from the bank accounts of paper companies during F.Y. 2008- 09 is details in Annexure-8.
The A.O. of the all beneficiary (Annexure-B) companies is being appraised of ] regarding accommodation entry accepted by the companies in F.Y. 2008-09. Further, A.O. of V concerns listed in Annexure-C, C-l and S is also being intimated regarding, cash deposit and credit made in different bank controlled by them for taking necessary action.
It appears that assessee M/s Omkam Developers Ltd. has received 'I bogus share capital/premium to the tune of Rs.1.93 Crores. The Income Tax | Returns of the assessee were also examined and noticed that the share premium; of assesses was increased to Rs.81,28,52,000/- in the relevant year from Rs. 17,69,50,000/-in the preceding year.
As discussed in earlier paras, the assessee has obtained such entries through above mentioned modus-operandi, it is actually assessee's own money (cash) which was rotated through such channel. This cash was out of his unaccounted income.
I have reasons to believe that an amount of Rs.1.93 crores has escaped from the Assessment for the A.Y. 2009-10 which was chargeable to tax. I am also satisfied that on account of failure on the part of the assessee to I disclose truly and fully all the material facts necessary for assessment for the j above assessment year, the income chargeable to tax to the tune of Rs.193.00 Lakh as escaped assessment with the meaning of Section 147 of the IT Act 1961
I have perused the information received from the Investigation Wing, Kolkata The Investigation Wing of the Department has sent comprehensive detail comprising inter alia the beneficiary's name, value of entry taken etc.
In the aforesaid case as per record from ITD, return of income was filed on declaring Rs.2,389/- income, it is noticed that the assessee company M/s Omkam Developers Ltd, received accommodation entries to the tune of Rs.1.93,crores during the F.Y. 2008-09 relevant to assessment year 2009-10 from the entry operators as mentioned in the chart above and same was not offered for taxation.
Having perused and considered the information, I have reason to believe that income of the assessment company to the extent of Rs.193 Lakh has escaped assessment for the Assessment Year 2009-10. Therefore, proceedings under section 147 i.e. clause (b) of Explanation 2 of the provisions of section 147 of the I.T. Act, 1961 is proposed to be initiated for the Assessment Year 2009-10.
As per ITD record, Return of Income has filed on 30.03.2010 at an income of'Rs.2,389/- for the A.Y. 2009-10.
Since four years has been expired from the end of the relevant assessment year in this case for the said assessment year, it is therefore I/requested that the reasons recorded above for the purpose of reopening of assessment is put up for kind satisfaction of Pr.CIT, Delhi-7, New Delhi in terms of proviso, to Section 151 of the Income Tax and approval for issue of notice u/s 147 may kindly be accorded."
10.1 On perusal of the proforma for the approval granted by the PCIT, it is evident that in the relevant column No.13 for satisfaction of the Pr.CIT, he has only mentioned "yes". No other information is available on record or provided by the ld. DR, which could establish application of mind by the CIT, while granting sanction/approval for issue of notice u/s 148 of the Act. No other evidence was produced as to substantiate that matter was ever discussed between the Assessing Officer or Addl. CIT and the Learned Pr.CIT for arriving at satisfaction of Learned Pr.CIT on the reasons recorded by the Assessing Officer. Even no evidences whether Ld PCIT examined the material relied upon by the Ld AO for reopening, was produced before us. In similar circumstances, Hon'ble Delhi High Court in the case of NC Cable Ltd (supra) held that section 151 of the Act clearly stipulates that Learned CIT, who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The Hon'ble High Court further observed that the mere appending of the expression 'approved' says nothing. It is not as if the CIT has to record elaborate reasons for agreeing with the noting put up but at the same time, satisfaction has to be recorded of the given case, which can be reflected in the briefest possible manner. The Hon'ble High Court further observed that in that case the exercise appeared to have been the ritualistic and formal rather than meaningful, which is the rationale for safeguard of an approval by a high-ranking officer. Thus, in the instant case, mere mentioning of "yes' for approval, without any other evidence of application of the mind, amounts to mechanical approval by the LearnedPr.CIT.
10.2 Further in Column No. 7 of the proforma, the section for invoking reassessment has been recorded as 147(b) of the Act. During the relevant period, section 147(b) was no longer in existence. This shows that the Ld. AO has filed the Proforma in mechanically manner and Ld. CIT has also approved the same mechanically. In the case of Madhu Apartment Private Limited vs. ITO, ITA.Nos.3869 & 3870/Del./2018 wherein the Tribunal, Delhi Bench, vide order dated 01/02/2021 held as under:
"7. After considering the rival submissions, we are of the view that the issue is covered by the Order of ITAT, Delhi G-Bench, Delhi in the case of VRC Township Pvt. Ltd., Delhi (supra) in which reopening of the assessment in identical circumstances was held to be bad in law and sanction accorded by the Sanctioning Authority was also found invalid, therefore, reopening of the assessment was quashed. In the present case, the Learned Counsel for the Assessee has pointed-out that assessee has raised this issue before the Ld. CIT(A), but, he has rejected the submissions of the assessee holding that Section 147(b) as mentioned in the reason and Format is a typographical human error which is curable under section 292B of the I.T. Act, 1961. This issue is also considered in the Order of VRC Township Pvt. Ltd., (supra) following the decision of Hon'ble Bombay High Court in the case of Kalpana Shantilal Haria vs. ACIT [2017] 100 CCH 165 (Bom.). Following the same reasons for decision, we set aside the Orders of the authorities below and quash the reopening of the assessment in both the assessment years under appeals. All additions stand deleted. Accordingly, appeals of the Assessee are allowed."
10.3 In the instant case before us, also the Learned DR has argued that the mistake of noting section under section 147(b) of the Act for reassessment proceeding is a clerical mistake, however, the Tribunal in the above decision has rejected the said contention and quashed reassessment proceeding on the ground of non-application of mind while granting approval for reopening of the assessment under section 151 of the Act.
10.4 Respectfully, following the decision of the Hon'ble Delhi High Court in the case of NC Cable Ltd (supra) and decision of the Tribunal in the case of Madhu Apartment Pvt. Ltd (supra), we quash the reassessment proceeding in the case of the assessee.
10.5 Since we have quashed the reassessment proceeding while adjudicating ground No.1 of the appeal of the assessee, no additions made by the Assessing Officer could be sustained. As far as other grounds of appeal of the assessee challenging validity of reassessment proceeding are concerned, same are rendered merely academic in nature and, therefore, we are not adjudicating upon those grounds. As ITA No.6862/Del./2018 & 7507/Del./2018 far as grounds of the parties challenging merit of the addition are concerned, same are rendered infructuous in view of the reassessment proceeding already quashed by us.
11. In the result, the appeal of the assessee is allowed, whereas appeal of the Revenue is dismissed.”
In the present case, the copy of the form for recording the reason for initiation of proceedings u/s 147 of the Act and for obtaining the approval u/s 151 of the Act is available at page 18 of assessee’s paper book, the ld. Sr. DR did not dispute that in the column No.7, the AO mentioned that the provision of section 147(b) of the Act is applicable. For the sake of completeness, the said format is being reproduced below:-
Therefore, it is clear that the AO, in the first page of reasons (supra) mentioned in column 7 that provisions of section 147(b) is applicable which is non-existent in the statute book for AY 2010-11. This apparently shows non-application of mind by the AO while filling proforma in a mechanical manner and the ld. ACIT and Ld. PCIT also approved the same in a mechanical manner. So far as the contention of the ld. Sr. DR that this defect is curable u/s 292B of the Act is concerned, this contention was decided by the ITAT Delhi Bench in the case of Madhu Apartments India Pvt. Ltd., & 3870/Del/2018, order dated 27
01.02.2021, the relevant part of which has already been reproduced in the earlier part of this order since the same was referred to and included in the relevant part of the order of the ITAT in the case of Omkam Developers Ltd. (supra). Therefore, respectfully following the order of ITAT Delhi Bench in the case of Omkam Developers Ltd. vs. ITO (supra) and Madhu Apartments P. Ltd. vs. ITO (supra), I hold that the impugned reassessment proceedings and the impugned reassessment order deserves to be quashed and I hold so.”
8. On perusal of the order of the Tribunal for recording the reasons in initiating proceedings under section 148 and for obtaining the approval of the Addl. Commissioner of Income Tax which is placed at page 14 of the paper book in column 7 the provisions of section 147(b) has been mentioned as the provisions applicable for re-opening the assessment for the assessment year under consideration i.e. 2007-08. This is the identical situation even for the assessment year 2010-11. Therefore, the decision rendered by the Tribunal for assessment year 2010-11 squarely applies to the facts of the assessee’s case for the assessment year 2007-08. Thus, respectfully following the said decision the re-assessment order passed under section 143(3) read with section 147 of the Act dated 20.03.2015 is quashed and ground No. 1 of grounds of appeal
of the assessee is allowed.”
10. Facts being identical. Respectfully following the said decision the reassessment order dated 09.12.2019 passed u/s 147/143(3) of the Act for the AY 2012-13 is quashed and the additional ground nos. 1 to 3 are allowed.
11. Since the appeal of the assessee is allowed on technical and legal grounds i.e. assumption of jurisdiction by the AO in reopening the assessment without application of mind and non supply of reasons for reopening the assessment all other grounds which are taken by the assessee on merits are not dealt with at this stage as the adjudication of these grounds becomes academic in nature.
In the result, appeal of the assessee is partly allowed as indicated above.
Order pronounced in the open court on 18/12/2024