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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’, NEW DELHI
Before: Sh. N. K. Saini
ORDER This is an appeal by the assessee against the order dated 07.06.2016 of ld. CIT(A)-XIX, New Delhi.
Following grounds have been raised in this appeal: “1. On the facts and circumstances of the case, the order passed by the learned GIT(A) is bad, both in the eye of law and on the facts.
2. On the facts and circumstances of the case, CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the initiation of the reassessment proceedings and the reassessment order are bad both on facts and In law and liable to be quashed as the statutory conditions and procedure prescribed under the statute have not been complied with.
Amolak Singh 3. (i)On the facts and circumstances of the case, CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the reassessment proceedings initiated by the learned A.O. are bad in the eye of law as the reasons recorded for the issue of notice under Section 148 are bad in the eye of law and are contrary to the facts. (ii)On the facts and circumstances of the case, CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the reassessment order passed by the A.O. is bad and liable to be quashed as the same has been reopened on the basis of the reasons which are vague and has been recorded without application of mind on the part of the A.O. 4. (i) On the fads and circumstances of the case, the teamed CIT(A) has erred both on facts & in law in confirming the addition of an amount of Rs.5,98,129/- on applying the gross profit rate of 14.99% as against actual gross profit of 11.87% earned by the assessee. (ii) That the G.P. rate of 14.99% has been affirmed on the basis of last year's G.P. without there being any basis of the same. 5. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming that the firm M/s Bankey Bihari Trading Co. are not engaged in the actual business ignoring the fact that during the course of the search substantial inventory in respect of the Amolak Singh material being purchased by the assessee were found which confirm the fact that this firm was doing actual business. (ii)On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in rejecting that the inference drawn by the AO merely on the basis of a statement that these firms are not in actual business is baseless and contrary to the facts on record.
6. On the facts and 'circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming the addition despite the fact that purchases were made in regular course of the business and material so purchased was sold in the regular course of business.
On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law In rejecting the contention of the assessee that the addition so made on the basis of material collected at the back of the assessee is bad in law & liable to be deleted.
8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in rejecting the contention of the assessee that the addition made by the learned AO is untenable in the eye of law having been made without providing opportunity to cross examine the person on the basis 01 whose statement the allegations have* been made against the assessee and without following the principle of natural justice.
Amolak Singh 9. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in passing the order without giving the assessee an opportunity of being heard, in gross violation of the principle of natural justice. 10. The appellant craves leave to add, amend or alter any of the grounds of appeal
.”
3. Vide Ground Nos. 1 to 3, the grievance of the assessee relates to the initiation of provisions u/s 148 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 24.10.2007 declaring an income of Rs.1,79,315/-. Thereafter, the AO received information from ACIT, Central Circle-10, New Delhi that accommodation entries were provided to various concerns by entities/concerns controlled by Sh. Vaibhav Jain, Sh. Navneet Jain, Rakesh Gupta and Sh. Vishesh Gupta and the assessee was the beneficiary of the accommodation entries to the tune of Rs.14,48,298/- from M/s Bankey Bihari Trading Co., 3838, Gali Barna, Sadar Bazar, Delhi. The AO also observed that the letter sent to M/a Bankey Bihari Trading Co., to confirm the transactions with the assessee, retuned unserved. He, therefore, on the basis of the aforesaid information received from Central Circle-10 made
Amolak Singh the addition of Rs.14,48,298/-. The AO also added Rs.1,59,929/- which was appearing in the balance sheet of the assessee as unsecured loan by observing that the assessee could not produce any document to prove the genuineness of transaction and creditworthiness of the parties.
Being aggrieved the assessee carried the matter to the ld. CIT(A) who passed the ex-parte order and deleted the addition of Rs.1,59,929/-. However, the ld. CIT(A) rejected the books of account by observing that in the absence of any quantitative analysis, it was not possible to assess the inflation in price and quantity in respect of purchase shown from M/s Bankey Bihari Trading Co. The ld. CIT(A) also observed that the assessee had shown gross profit of 11.87% as compared to 14.99% in the preceding year. He applied the gross profit rate at 14.99% as was in the preceding year which resulted in an addition of Rs.5,98,129/-.
Now the assessee is in appeal. The ld. Counsel for the assessee at the very outset stated that the reopening was done only on the basis of information received from the Investigation Wing and the AO has not applied his own mind. Therefore, the reopening was not valid. The reliance
Amolak Singh was placed on the decision of Hon’ble Delhi High Court in the case of Pr. CIT Vs G & G Pharma Ltd. reported at 384 ITR 147.
7. In his rival submissions the ld. DR strongly supported the orders of the authorities below and further submitted that the ld. CIT(A) was fully justified in upholding the reopening of assessment and in sustaining the addition made by the AO.
We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is noticed that the AO in the body of the assessment order dated 26.03.2015 noted as under:
In this case, information was received from ACIT, Central Circle-10, New Delhi that accommodation entries was provided to various concerns by entities/concerns controlled by Sh. Vaibhav Jain, Sh. Navneet Jain, Rakesh Gupta and Sh. Vishesh Gupta. Assessee is the beneficiary of the accommodation entries to the tune of Rs.14,48,298/- from M/s Bankey Bihari Trading Co., 3838, Gali Barna, Sadar Bazar, Delhi-110006.
From the above notings of the AO, it is crystal clear that the reopening u/s 147 r.w.s 148 of the Act was done only on the basis of the information received from the Investigation Wing and the AO did not apply his independent mind to come to the conclusion that the income of the assessee escaped assessment.
On a similar issue the Hon’ble Jurisdictional High Court in the case of Principal Commissioner of Income Tax Vs G & G Pharma Ltd. 384 ITR 147 (supra) held as under: “The basic requirement of law for reopening an assessment is application of mind by the Assessing Officer, to the materials produced prior to reopening the assessment, to conclude that he has reason to believe that income has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not make an inherently defective reassessment order valid.” It has further been held as under: “Without forming a prima facie opinion, on the basis of such material, it was not possible for him to have simply concluded that it was evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries. The basic jurisdictional requirement was application of mind by the Assessing Officer to the material produced before issuing the notice for reassessment. Without analysing and forming a prima facie opinion on the basis of material produced, it was not possible for the Assessing Officer to conclude that he had reason to believe that income had escaped assessment.”
In the present case also the AO simply acted upon the information received from the Investigation Wing and did
Amolak Singh not apply his own mind. Therefore, the reopening u/s 147 by issuing the notice u/s 148 of the Act only on the basis of information received from the Investigation Wing was not valid. Accordingly, the reassessment framed by the AO is held to be invalid and quashed.