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Income Tax Appellate Tribunal, DELHI BENCH “SMC”, NEW DELHI
Before: SHRI R. K. PANDA
Assessee by : Shri R. S. Singhvi, CA Department by : Ms. Yamini, Sr.DR Date of hearing : 23-11-2017 Date of pronouncement : 12-12-2017 O R D E R
PER R. K. PANDA, AM :
This appeal filed by the assessee is directed against the order dated 24.10.2014 of CIT(A)-XII, New Delhi relating to assessment year 2005-06.
This appeal was earlier dismissed by the Tribunal for non-appearance. Subsequently, the Tribunal vide MA No.410/Del/2016 order dated 22.09.2017 recalled its earlier order. Hence, this is a recalled matter. 3. Facts of the case, in brief, are that on the basis of information received from the Investigation Wing that the assessee had received an amount of Rs.5,00,000/- during the previous year 2004-05 (relevant to the assessment year 2005-06) in the form of Cheques/DDs as accommodation entries from the companies created by Shri Mahesh Garg Group (Greater Master Voice (I) Pvt.
Ltd.), the Assessing Officer reopened the assessment u/s 147 of the I.T. Act.
The Assessing Officer issued statutory notices asking the assessee to furnish details regarding the genuineness of such amount. However, there was no proper compliance from the side of the assessee. Therefore, the Assessing Officer completed the assessment u/s 144/147 of the I.T. Act and made addition of Rs.5,02,500/- (Rs.5,00,000/- for accommodation entries + Rs.2,500/- being commission for arranging such accommodation entries) u/s 69A of the I.T. Act.
Before the ld. CIT(A), the assessee, apart from challenging the addition on merit, also challenged the validity of the re-assessment proceedings.
However, the ld. CIT(A) dismissed the appeal filed by the assessee by observing as under :-
“1. All grounds are together: 1.1 I have considered the grounds raised in appeal and the facts of the case. I have also considered the submission filed by the AR of the appellant. 1.2 The appellant has raised ground against the addition of Rs.5,02,500/- u/s 69A of the Act. It is seen that the assessee received Rs.5,00,000/- in the form of accommodation entry from Shri Mahesh Garg and failed to give explanation for the same. Sh. Mahesh Garg admittedly is an entry operation, in the business of giving accommodation entry in the form of cheques in lieu of unaccounted cash. The assessee failed to file income tax return and produce necessary evidence hence the addition. In view of these facts I have no reason to disagree with the order of assessment. Case laws relied upon by the appellant are distinguishable on facts. Ground raised in appeal is dismissed. 1.3 The appellant also raised ground against the reopening of the case u/s 148. On perusal of order of assessment, there is no discrepancy in the procedure followed for reopening of the case hence the ground is baseless. Ground raised in appeal is dismissed.
2. Ground No.3: consequential in nature.
Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds :-
“1(i). That on the facts and circumstances of the case, the CIT(A) was not justified in confirming reopening u/s. 148 without appreciating facts of the case and the legal principles. (ii) That the ground relating to reopening was dismissed without proper appreciation of facts and application of mind. (iii) That there is no factual or legal basis for initiating proceedings u/s. 148 and same is not sustainable on facts and under the law.
2. That even on merits, there is no ground or basis for sustaining addition of Rs.5,02,500/- u/s. 69A of the Income Tax Act, 1961.
That orders of the lower authorities are not justified on facts and same are bad in law.”
Ld. counsel for the assessee at the outset referred to page 1 of the assessment order and submitted that the statement of Sh. Mahesh Garg was recorded on 22.09.2003 whereas the impugned assessment year is 2005-06.
Therefore, when the statement was recorded for assessment year 2004-05, the reopening of the assessment could not have been made for an assessment subsequent to assessment year 2004-05 which in the instant case the assessment year is 2005-06. According to the ld. counsel for the assessee, the Assessing Officer has not applied his mind and the re-assessment proceedings were initiated on the basis of information obtained from the Investigation Wing.
Referring to the decision of the Hon’ble Delhi High Court in the case of Sabh Infrastructure Ltd. vs. ACIT in W.P. (C) 1357/2016 order dated 25.09.2017, he drew the attention of the Bench to the Guidelines framed by the Hon'ble High Court while reopening the assessments which are as under :-
“19. Before parting with the case, the Court would like to observe that on a routine basis, a large number of writ petitions are filed challenging the reopening of assessments by the Revenue under Sections 147 and 148 of the Act and despite numerous judgments on this issue, the same errors are repeated by the concerned Revenue authorities. In this background, the Court would like the Revenue to adhere to the following guidelines in matters of reopening of assessments: (i) while communicating the reasons for reopening the assessment, the copy of the standard form used by the AO for obtaining the approval of the Superior Officer should itself be provided to the Assessee. This would contain the comment or endorsement of the Superior Officer with his name, designation and date. In other words, merely stating the reasons in a letter addressed by the AO to the Assessee is to be avoided; (ii) the reasons to believe ought to spell out all the reasons and grounds available with the AO for re-opening the assessment - especially in those cases where the first proviso to Section 147 is attracted. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof; (iii) where the reasons make a reference to another document, whether as a letter or report, such document and/ or relevant portions of such report should be enclosed along with the reasons; (iv) the exercise of considering the Assessee’s objections to the reopening of assessment is not a mechanical ritual. It is a quasi-judicial function. The order disposing of the objections should deal with each objection and give proper reasons for the conclusion. No attempt should be made to add to the reasons for reopening of the assessment beyond what has already been disclosed.”
7. Referring to the decision of the Co-ordinate Bench of the Tribunal in the case of M.S. Software (P) Ltd. vs. ITO in order dated 09.08.2017 for assessment year 2006-07, he submitted that the Tribunal has thoroughly discussed the issue and has held that reopening the assessment u/s 147 by issuing notice u/s 148 on the basis of information received from the Investigation Wing of the Department and in absence of any independent application of mind by the Assessing Officer is void ab initio. He accordingly submitted that the re-assessment proceedings should be held as invalid and consequently the subsequent proceedings be declared as void ab initio.
8. Ld. DR on the other hand relied on the order of the ld. CIT(A). She submitted that the assessment has validly been reopened and the addition was made since the assessee did not participate in the assessment proceedings by filing the requisite details. She further submitted that since there was failure on the part of the assessee to produce evidence regarding such accommodation entries, therefore, the matter may be restored to the file of the Assessing Officer.
9. I have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. I find the Assessing Officer in the body of the assessment order has mentioned that the statement of Shri Mahesh Garg was recorded on 22.09.2003 by the Investigation Wing of the Department in which he has admitted that he has created various entities for the purpose of providing accommodation entries. Thus, the statement was recorded on 22.09.2003 and the assessee as per page 2 of the assessment order has received an amount of Rs.5,00,000/- on 02.09.2004 from M/s Great Master Voice (I) Pvt. Ltd..
Further, the information was received from the Investigation Wing in the instant case based on which the Assessing Officer has reopened the assessment. There is no application of mind by the Assessing Officer before reopening of the assessment except relying on the information received from the Investigation Wing. I find an identical issue had come up before the Co-ordinate Bench of the Tribunal in the case of M.S. Software (P) Ltd. (supra). I find the Tribunal after thoroughly considering various decisions held that reopening of the assessment on the basis of information received from the Investigation Wing of the Department and in absence of independent application of mind by the Assessing Officer is not valid. The relevant observation of the Tribunal from para 6 onwards reads as under :-
“6. I have considered the rival arguments made by both sides, perused the orders of the authorities below and the paper book filed on behalf of the assessee. I have also considered the various decisions relied on by both sides. I find that the A.O. on the basis of information received from Investigation Wing of the department that the assessee has received accommodation entries of Rs.4 lakhs from companies operated by Shri Surendra Kumar Jain and Shri Vikram Kumar Jain through cheque in lieu of cash reopened the assessment u/s 147 by issuing notice u/s 148. Despite given due opportunity to the assessee to produce the directors of the companies in question, the assessee failed to produce the directors. Since the assessee could not discharge the onus cast on it the A.O. made addition of Rs.4 lakhs to the total income of the assessee u/s 69 of the Act. Since the assessee did not appear before the CIT(A) during the appeal proceedings he dismissed the appeal filed by the assessee though on merits. It is the submission of the Ld.Counsel for the assessee that in view of the decision of Hon’ble Delhi High Court in the case of Principal CIT vs. G&G Pharma Ltd. (supra) and in the case of Signature Hotels Ltd. (supra), the notice issued u/s 148 has to be quashed since there is no independent application of mind by the A.O. and he has issued notice u/s 148 by reopening assessment u/s 147 only on the basis of information received from the Investigation wing of the department.
I find an identical issue had come up before the Hon’ble Delhi High Court in the case of Principal CIT vs. G&G Pharma Ltd. (supra) wherein the Hon’ble High Court had quashed the reassessment proceedings initiated on the basis of information obtained from the Investigation Wing of the department on the ground that the A.O. has not applied his mind to the material before him to prove that he had reasons to believe that income had escaped assessment. The relevant observation from paras 12 to 15 read as under. “12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: “I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries.” The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: “it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries”. In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case.
Mr.Sawhney took the Court through the order of the CIT(A) to show how the CIT(A) discussed the materials produced during the hearing of the appeal. The Court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT(A) may have proceeded on the basis that the reopening of the assessment was valid, this does not satisfy the requirement of law that prior to the reopening of the assessment, the AO has to, applying his mind to the materials, conclude that he has reason to believe that income of the Assessee has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity.
In the circumstances, the conclusion reached by the ITAT cannot be said to be erroneous. No substantial question of law arises.
15. The appeal is dismissed.”
I find that the Hon’ble Delhi High Court in the case of Signature Hotels Ltd. (supra) has also taken similar view. The relevant observation from para 14 to 19 is as under. “14. The first sentence of the reasons states that information had been received from Director of Income-Tax (Investigation) that the petitioner had introduced money amounting to Rs.5 lacs during financial year 2002-03 as per the details given in W.P. (C) NO. 8067/2010 Page 12 Annexure. The said Annexure, reproduced above, relates to a cheque received by the petitioner on 9th October, 2002 from Swetu Stone PV from the bank and the account number mentioned therein. The last sentence records that as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary.
The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the W.P. (C) NO. 8067/2010 Page 13 information received from the Director of Income-Tax (Investigation) and arrive at a belief whether or not any income had escaped assessment.
It may be noted here that a company by the name of Swetu Stone Pvt. Ltd. had applied for and was allotted shares in the petitioner company on payment by cheque of Rs.5 lacs. As noticed above, in the Annexure the name of the company/account holder is mentioned as Swetu Stone PV. The same is also mentioned in the undated reasons mentioned above.
In the counter affidavit it is stated that M/s Swetu Stone Pvt. Ltd. had applied for allotment of shares worth Rs.5 lacs and the same were allotted by the petitioner. It is further stated that statements of Mahesh Garg and Shubhash Gupta were recorded by the Director of Income-Tax (Investigation) and on the basis of the statements they have come to the conclusion that the said persons were entry operators. Copy of the statements of Mahesh Garg and Shubhash Gupta have not been placed on record by the respondent. The petitioner, has, however, enclosed copy of statements of Mahesh Garg and Shubhash Gupta recorded on different dates. The said persons W.P. (C) NO. 8067/2010 Page 14 have not specifically named the petitioner though other parties have been named and details have been given and it is stated that they were provided accommodation entries. However, it is stated that the entries were made by giving cheque/DD/PO after receiving cash and sometimes expenses entries were provided. The reasons recorded by the Assessing Officer do not make reference to any statement of Mahesh Garg or Shubhash Gupta. This may not also be necessary, if the statements were on record and it is claimed and prima facie established that they were examined by the Assessing Officer before or at the time of recording reasons. On the other hand, in the present case, information as enclosed as Annexure, has been referred. This is the only material relied upon by the Assessing Officer. The said Annexure has been quoted above. In this connection, we may notice that M/s Swetu Stone Pvt. Ltd. is an incorporated company and the petitioner has pleaded and stated that the said company has a paid-up capital of Rs.90 lacs. The company was incorporated on 4th January, 1989 and was also allotted a permanent account number in September, 2001. To this extent, there is no dispute. In these circumstances, we feel the judgments of the Delhi High Court in Commissioner of Income W.P. (C) NO. 8067/2010 Page 15 Tax versus SFIL Stock Broking Limited, [2010] 325 ITR 285 (Delhi) and Sarthak Securities Company Private Limited versus Income Tax Officer, 2010 (329) ITR 110 (Delhi), in which CIT versus Lovely Exports (P) Limited, (2009) 216 CTR 195 (SC) has been applied and followed, are applicable. We may notice here that the respondent in their counter affidavit have stated that Swetu Stone Pvt. Ltd. is unidentifiable and, therefore, the aforesaid decisions should not be applied and the ratio of the decision dated 7th January, 2011 in Writ Petition (Civil) No. 7517/2010, AGR Investment Limited versus Additional Commissioner of Income Tax and Another should be applied. In the said decision, decisions in the case of Sarthak Securities Company Private Limited (supra) and SFIL Stock Broking Limited (supra) was distinguished by giving the following reasons: "22. ....In SFIL Stock Broking Ltd. (supra), the bench has interfered as it was not discernible whether the assessing officer had applied his mind to the information and independently arrived at a belief on the basis of material which he had before him that the income had escaped assessment. In our considered opinion, the decision rendered therein is not applicable to the factual matrix in the case at hand. In the case of Sarthak Securities Co. Pvt. Ltd. (supra), the Division Bench had noted that certain companies W.P. (C) NO. 8067/2010 Page 16 were used as conduits but the Assessee had, at the stage of original assessment, furnished the names of the companies with which it had entered into transaction and the assessing officer was made aware of the situation and further the reason recorded does not indicate application of mind. That apart, the existence of the companies was not disputed and the companies had bank accounts and payments were made to the Assessee company through the banking channel. Regard being had to the aforesaid fact situation, this Court had interfered. Thus, the said decision is also distinguishable on the factual score."
The facts indicated above do not show that M/s Swetu Stone Pvt. Ltd. is a non-existing and a fictitious entity/person. Decision in AGR Investment Limited (supra), therefore, does not help the case of the respondent.
For the reasons stated above, the present writ petition is allowed and writ of certiorari is issued quashing the proceedings under Section 148 of the Act. In the facts of the case, there will be no order as to costs.”
Since in the instant case the A.O. has reopened the assessment u/s 147 by issuing notice u/s 148 of the Act on the basis of information received from the Investigation Wing of the department and there is no independent application of mind by him for issue of such notice, therefore, in view of the decisions of Hon’ble Jurisdictional High Court cited (supra), the reassessment notice has to be quashed being void ab initio. The various decisions relied upon by Ld.D.R. are not application for deciding this legal ground. Since the assessee succeeds on this legal ground, the various other grounds are not being adjudicated being academic in nature.
10. In the result the appeal filed by the assessee is allowed.”
Since the facts of the instant case are identical to the facts of the case decided by the Tribunal, therefore, following the order of the Tribunal in the case of M.S. Software (P) Ltd. (supra) I hold that the re-assessment proceeding initiated by the Assessing Officer in the instant case is invalid. Therefore, subsequent proceedings by the Assessing Officer also become void and invalid.
Since the assessee succeeds on this legal ground, I refrain myself from adjudicating the issue on merit. The grounds raised by the assessee are accordingly allowed.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on this 12th day of December, 2017.