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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ : NEW DELHI
Before: SHRI H.S. SIDHU & SHRI PRASHANT MAHARISHI
The Assessee has filed the Appeal against the Order dated 03.12.2013 of the Ld. CIT(A)-XVII, New Delhi pertaining to assessment year 2005-06 on the following grounds:-
1. That the Ld. CIT(A) has erred in law and on facts in sustaining the addition of Rs. 20,00,000/-
representing the share capital by invoking the provisions of Section 68.
2. That the Ld. CIT(A) has erred in law and on facts in sustaining the addition of Rs. 50,000/- being a hypothetical figure (Commission) @4% of the share
capital.
3. That the Ld. CIT(A) has erred in law and on facts in sustaining the addition despite no proper opportunity
of being heard was provided by the AO.
4. That the impugned appellate order is arbitrary, illegal,
bad in law and in violation of rudimentary principles of contemporary jurisprudence.
5. That the appellant craves leave to add/ alter any / all
grounds of appeal before or at the time of hearing of the appeal.
Assessee has also filed an Application for admission of additional grounds of Appeal vide its Application in which the assessee has stated that in view of the settled decision in the case of NTPC 229 ITR 383 (SC), (legal ground can be raised for first time in collateral and second round also). He further stated that the following additional grounds are purely legal and do not require fresh investigation of facts and therefore, the same may be admitted.
“1. That the Ld. AO has wrongly made the assessment by invoking the provisions of Section 147 when the same are not applicable on the facts of the case.
2. That the assessment could not have been re-opened u/s. 147/148 as reasons have been recorded by AO only on borrowed satisfaction. There are no material on record
to establish any satisfaction on part of the AO that any income belonging to the appellant has escaped assessment.”
Ld. Counsel of the Assessee requested that keeping in view of the decision of the Hon’ble Supreme Court of India in the case of NTPC 229 ITR 383 (SC) (Supra), the aforesaid additional grounds raised by the assessee may be admitted and decided first.
On the contrary, Ld. DR strongly opposed the admission of additional grounds (legal) raised by the assessee.
After hearing both the parties as well as perusing the additional grounds alongwith the orders passed by the Revenue Authorities, we are of the considered view that in view of the decision of the Hon’ble Supreme Court of India in the case of NTPC Limited 229 ITR 383 (Supra), the additional grounds raised by the assessee vide its Application dated 27.6.2016 are purely legal grounds and do not require fresh facts which is to be investigated and goes to the root of the matter. In the interest of justice, we admit the aforesaid additional grounds raised by the assessee, in view of the case law of NTPC Limited (Supra) and proceed to decide the additional grounds first.
The brief facts of the case are that return of income was filed on 31.10.2005 declaring income of Rs. 22,15,834/-. A notice u/s. 148 of the I.T. Act, 1961 was served upon the assessee company on 29.3.2012 on the reasons recorded. In response to the notice u/s. 148 of the I.T. Act, 1961 the assessee company filed a return of income on 1.5.2012. Thereafter, a notice under section 142(1) of the I.T. Act, 1961 was issued alongwith notice u/s. 143(2) of the Act and the case of the assessee company was fixed for hearing on 10.10.2012. In compliance to notice u/s. 143(2), the AR of the Assessee attended the proceedings from time to time and filed the information as called for. Thereafter, AO added Rs.20,50,000/- to the income of the assessee u/s 68 of the Income Tax Act, 1961 and completed the assessment at Rs. 42,65,830/- u/s. 143(3)/147 of the Act vide his order dated 15.2.2013.
Against the Order of the AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated 03.12.2013 has dismissed the appeal of the Assessee.
Aggrieved with the aforesaid order of the Ld. CIT(A), Assessee is in Appeal before the Tribunal for challenging the legal issue raised vide additional as well as the addition in dispute, as aforesaid.
At the time of hearing, Ld. Counsel of the assessee has only argued the legal ground that notice u/s. 148 issued in this case is contrary to the provisions of section 147 by stating that action of the Assessing Officer is illegal. He further stated that assessment could not have been re-opened u/s. 147/148 as reasons have been recorded by AO only on borrowed satisfaction. He further stated that there are no material on record to establish any satisfaction on the part of the AO that any income belonging to the assessee has escaped assessment. He draw our attention towards the copy of reasons for reopening the case u/s. 148 and stated that no proper reasons were recorded; no nexus between the materials relied upon and the belief formed for escapement of income; no application of mind; no proper satisfaction was recorded before issue of notice u/s. 148; no independent conclusion that there was escapement of income and no proper satisfaction. It was further stated that the case was reopened only on the basis of investigation wing information which suffers with serious debility and lacks definiteness, without describing the basic aspects of alleged transaction (viz. date, mode, bank through which transacted, instrument, its nature, return filing details etc.) and in the absence of the same, whole action of the AO gets vitiated. To support his contention he submitted that the issue in dispute is squarely covered in favour of the assessee by the ITAT decision dated 09.1.2015 in the case of G&G Pharma India Limited vs. ITO passed in (AY 2003-04) in which the Judicial Member is the Author. He further stated that the above decision of the ITAT dated 9.1.2015 has been upheld by the Hon’ble Jurisdictional High Court in its Decision dated 08.10.2015 in ITA No. 545/2015 in the case of Pr.
CIT-4 vs. G&G Pharma India Ltd. In this behalf, he filed the copy of the order dated 9.1.2015 of the ITAT, Delhi Bench passed in the case of G&G Pharma India Ltd vs. ITO (Supra). In view of the above, he requested that by following the aforesaid precedent the reassessment proceedings of the AO may be quashed by accepting the Appeal filed by the Assessee.
10. On the contrary, Ld. DR relied upon the order passed by the authorities below and stated that the AO has properly recorded the reasons for reopening by due application of mind, hence, the appeal of the Assessee may be dismissed.
We have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities and the case laws cited by the assessee’s counsel on the issue in dispute. In our view, it is very much necessary to reproduce the reasons recorded by the AO before issue of notice u/s. 148 for reopening of assessment which reads as under:-
"Subsequently information has been received from the Directorate of Income Tax (Investigation) of the Income
Tax Department that the above named assessee is a beneficiary of accommodation entries received during the period F. Y.2004-05 relevant to A. Y. 2005-06 taken from established entry-operators identified by the Investigation Wing on the basis of Search/Survey conducted by it on in the case of Sh. Tarun Goyal c.A. and Group. A comprehensive investigation was carried out by the Investigation Wing in this regard and on the basis of investigation carried out and evidences collected, examination made, a report has been forwarded which shows that the above named Sh. Tarun C.A. and Group has floated a number of concern/Pvt. Ltd. companies for providing accommodation entries to various desirous persons. These concerns/companies were found to be only paper entities providing accommodation entries and not doing any other real business. Sh. Tarun Goyal C.A. and Group have been doing the business of providing accommodation entries through these concerns by giving cheques/PO/DD in lieu of cash with/without the help of some agents/mediators. They have also being charging certain commission for providing these entries which usually varied from 1.5% to 3.5%.
A perusal/ examination of report/ related documents/ related records show that M/s Paltech Cooling Water &
Equipment Pvt. Ltd. being assessed with the undersigned has also received a sum of Rs.10,00,000/- from the above said Sh. Tarun Goyal C.A. and Group through M/s
Mahanivesh India Ld. which does not represent actual transactions but are only accommodation entries. In fact perusal/examination of report/documents/records show that the entire transaction lacks ingredients of genuineness and seems totally fishy. It can therefore be safely inferred that this amount is unaccounted money of my assessee introduced in its accounts after routing through these groups/entry providers to avoid taxing of such amounts. In view of the above, I have reason to believe that the assessee company has taken bogus/ accommodation entries only as discussed above to the tune of Rs.10,00,000/- in the period relevant to A. Y.
2005-06 resulting into escapement of income to this extent plus the amount of commission paid there on out of books. Considering these facts I have reasons to believe that income to the above extent Rs.10,00,000/- plus the amount of commission paid there on out of books has escaped assessment by reason of the failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment for this year.
Accordingly, action u/s 147 is proposed to be taken and notice u/s 148 is to be issued to bring this escaped income and also any other income chargeable to tax which- has escaped assessment and which comes to notice subsequently in the course of proceedings."
After going through the reasons recorded by the AO, we are of the view that AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Addl. Directorate of Income Tax (Investigation), New Delhi.
Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed.
Our view is supported by the following judgments/decisions:-
(A) The Tribunal in its decision dated 9.1.2015 passed in (AY 2003-04) in the case of G&G Pharma India Limited vs. ITO, has held under:-
“8. We have perused the aforesaid reasons recorded by the AO for reopening the assessment in dispute and we are of the considered view that the AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. A mere reference is made to certain information received from the Investigation
Wing which was supplied to the assessee vide
AO’s letter dated 15.9.2010. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO had mechanically issued notices u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Investigation, Jhandewalan, New Delhi.
Keeping in view of the facts and circumstances of the present case and the law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. year in dispute is bad in law and deserves to be quashed. We draw our support from the judgments of the Hon’ble High Court of Delhi in the following cases:-
(i) Signature Hotels (P)_ Ltd. vs. ITO and another reported in 338 ITR 51
(Del) has under similar circumstances as follows:-
“For the A.Y. 2003-04, the return of income of the assessee company was accepted u/s.143(1) of the Income-tax
Act, 1961 and was not selected for scrutiny. Subsequently, the Assessing
Officer issued notice u/s.148 which was objected by the assessee. The Assessing Officer rejected the objections. The assessee company filed writ petition and challenged the notice and the order on objections.
The Delhi High Court allowed the writ petition and held as under:
“(i) Section 147 of the Income-tax Act,
1961, is wide but not plenary. The Assessing Officer must have ‘reason to believe’ that income chargeable to tax has escaped assessment. This is mandatory and the ‘reason to believe’ are required to be recorded in writing by the Assessing Officer.
(ii) A notice u/s.148 can be quashed if the ‘belief’ is not bona fide, or one based on vague, irrelevant and non- specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded the reasons. There should be a link between the reasons and the evidence/material available with the Assessing Officer.
(iii) The reassessment proceedings were initiated on the basis of information received from the Director of Income-tax (Investigation) that the petitioner had introduced money amounting to Rs.5 lakhs during F.Y.
2002-03 as stated in the annexure.
According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income.
(iv) Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, S, had a paid up capital of Rs.90 lakhs and was incorporated on January 4, 1989, and was also allotted a permanent account number in September 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to the quashed.”
(ii). In the case of CIT vs. Atul Jain reported in 299 ITR 383 it has been held as under:- “Held, dismissing the appeals, that the only information was that the assessee had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque for that amount. The information did not indicate the source of the capital gains which in this case were shares. There was no information which shares had been transferred and with whom the transaction had taken place. The AO did not verify the correctness of information received by him but merely accepted the truth of the vague information in a mechanical manner.
The AO had not even recorded his satisfaction about the correctness or otherwise of the information for issuing a notice u/s 148. What had been recorded by the AO as his “reasons to believe”was nothing more than a report given by him to the Commissioner.
The submission of the report was not the same as recording of reasons to believe for issuing a notice. The AO had clearly substituted form for substance and therefore the action of the AO was not sustainable.”
9. In view of above, we are of the considered
view that above issue is exactly the similar to the issue involved in the present appeal and is squarely covered by the aforesaid decisions of the Hon’ble
High Court of Delhi. Hence, respectfully following the above precedent, we decide the legal issue in dispute in favor of the Assessee and against the Revenue and accordingly quash the reassessment proceedings. The other issues are not dealt with as the same have become academic in nature.
In the result, the Appeal filed by the Assessee stands allowed.”
(B). Pr. CIT vs. G&G Pharma India Ltd. in dated 8.10.2015 of the Delhi High Court wherein the Hon’ble Court has adjudicated the issue 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.
13. 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 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 .
14. 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.”
In view of above, we are of the considered view that the above legal issue is exactly the similar and identical to the issue involved in the present appeal and is squarely covered by the aforesaid decisions of the Hon’ble Supreme Court of India, Hon’ble High Courts of Delhi and ITAT, Delhi. Hence, respectfully following the above precedents, we decide the legal issue in dispute in favor of the Assessee and against the Revenue and quash the reassessment proceedings being bad in law.
As we have held that the reassessment is bad in law, we do not find it necessary to decide other issues which are on merits of the case.
In the result, the Assessee’s Appeal stands allowed.
Order pronounced in Open Court on this 17-04-2017.