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Income Tax Appellate Tribunal, DELHI BENCH “A”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI PRASHANT MAHARISHI
ORDER PER H.S. SIDHU : JM
The Revenue has filed this Appeal and Assessee has filed the Cross Objection against the impugned Order dated 14.11.2014 passed by the Ld. CIT(A)-IV, New Delhi relevant to assessment year 2005-06.
The grounds raised in the Revenue’s Appeal read as under:-
“On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in:
Holding that the reasons recorded by the AO were not sufficient to assume reassessment jurisdiction by ignoring the fact that the requisite belief recorded by the AO was based on relevant material.
2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”
The grounds raised in the Assessee’s Cross Objection read as under:-
“1. That the CIT(A) erred in not adjudicating the ground of appeal wherein the respondent proceeding and assessment of the AO for initiating the reassessment proceeding and assessment subsequently as the objections for initiating the proceeding u/s. 147 were not disposed off as per the judgment of the Hon’ble Supreme Court of India in the case of GKN Driveshaft Pvt. Ltd.
2. That the Ld. CIT(A) erred in not adjudicating the ground of appeal in respect of mechanical approval given by the Additional Commissioner of Income Tax without being satisfied himself as required under the law enunciating in Section 151 of the Act.
3. Without prejudice ground no. 1 and 2 above, on the facts of the case and as per law, the Ld. CIT(A) erred in not adjudicating the ground in respect of making addition of Rs. 30,00,000/- under section 68 of the Act on account of Share 2
capital raised from five private limited companies, duly assessed under Income Tax Act, in spite of the fact that the Respondent filed confirmation of the respective share holder, copy of share application, copy of bank statement of the bank account of the respective share holder and personal disposition of the Director of the Company was recorded by the AO of the Respondent Company wherein Director of the respective company accepted for subscribing the share capital of the respondent company.
That the Ld. AO erred in charging interest u/s.234B of the Income Tax Act on the facts of the case and as per law.
5. That the appellant craves leave to add, amend or alter any of the grounds of the appeal.
4 The brief facts of the case are that the original return of income was filed on 21.9.2005 at an income of Rs.83,120/-. The same was processed u/s.143(1)of the I.T. Act, 1961 at the declared income. The assessee company was engaged in the business of trading of tirpal and canvas cloth during the year under consideration. An information was received from the Investigation Wing of the Income Tax Department that the assessee company has made the transactions with M/s SK Jain Group Companies. It was alleged that the M/s SK Jain group at the time of search on the group companies firms has said that the group was dealing in providing the accommodation entries in the shape of share capital, loans during the financial year 2004-05. The addition was made u/s. 68 of the Act rejecting the documents and explanation and statement recorded by the Directors of the share applicant companies. Thereafter, the AO vide order dated 11.3.2013 passed u/s. 143(3)/148 of the I.T. Act,1961 and assessed the income at Rs. 30,83,120.
Against the said order of the Ld. AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated 14.11.2014 has partly allowed the appeal of the assessee thereby holding that the notice issued by the AO u/s.148 of the Act was not a valid notice and the same was quashed
Aggrieved with the aforesaid order of the Ld. CIT(A), Revenue is in appeal and Assessee is in Cross Objection before the Tribunal
Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal and stated that the Ld. CIT(A) has wrongly quashed the notice u/s.148 of the I.T. Act.
8. On the contrary, Ld. Counsel of the assessee relied upon the order of the Ld. CIT(A) and stated that the reopening in the present case is illegal and, therefore, requested that action of the Ld. CIT(A) in quashing the notice u/s.148 of the Act may be upheld and accordingly, the Appeal of the Revenue may be dismissed and Cross Objection filed by the assessee stand allowed.
We have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities. We find that Ld. CIT(A) has elaborately discussed the issue in dispute vide para no. 5.3 to 6 which reads as under:-
“5.3 I have carefully considered the submissions of the appellant and perused the reasons recorded by the AO and the assessment order passed by the AO. It will be convenient to reproduce the reasons recorded by the AO as under:-
“An information has been received from the Director of Income Tax ax (Inv.)-I, New Delhi (CIB) that at the time of search and seizure operation it was noticed that the concern party has provided the accommodation entries to various parties. M/s Ankur Products Pvt. Ltd. was provided the entry through the accounts of Sh. S.K. Jain Group. The concern person has taken the cash at a commission of 0.25% and then provided the entry through cheque.
As per the record available on line, it is noticed that the assessee's case for the A.Y. 2005-06 was completed u/s 143(1) only. The following has been forwarded after thorough verification and enquiry.
"It is evidently clear that the undisclosed income of these beneficiary companies which has been introduced by them in the form of share capital! premium/loan has escaped taxation. Therefore it is required that these amounts be brought to tax by initiating action under section 148 of income- tax Act ,1961 for the A.Y. 2005-06 in the case of above mentioned beneficiary companies."
Hence as per the information available, it is worth to mention that taking the accommodation entry after giving the cash and taking the cheque after paving the commission also in cash, as per the statement of the person who are maintaining the affairs of Sh. S.K. Jain Group, was searched u/s 132(1) of IT Act. From the statement it is clear that this amount of Rs. 30,00,000/- was an accommodation entry which has escaped assessment during the A.Y. 2004-05 relevant to A.Y. 2005-06.
I find the assessee at fault, for not disclosing the amount of Rs. 30,00,000/- for the tax and concealing the same being taxed. I am satisfied that it is a fit case to reopen u/s 148 as the case of assessee is fully covered as per the provision of IT Act, 1961, Section 147. Sd/- (Hari Krishan) Income Tax officer Ward 1(4), New Delhi 5.3.1 On perusal of the reasons recorded by the AO, I find that the AO has not mentioned the names of the persons who are alleged to have given the accommodation entries. It simply says that "the concern party" has provided the accommodation entries to various parties. However, it does not specify as to which concerned party has provided the accommodation entries. The reasons recorded also does not mention as to who are the persons whose statement was recorded and what those persons have stated in their statements and whether they have stated anything specifically against the appellant. I further find that the name of the entry provider is not mentioned in the reasons recorded by the A.O. I further find that the AO has mentioned that as per the information available, the amount of RS.30,OO,000/- was an accommodation entry.
5.3.2 The Hon'ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co. Vs. CIT [2008] 175 Taxman 262 (Delhi) has held that if in the reasons supplied to the assessee, there was no allegation that it had failed to disclose full and truly all material facts necessary for assessment and because of its failure there had been escapement of income Chargeable to tax, reopening of assessment after expiry of four years' from end of relevant assessment year was without jurisdiction. The Hon'ble Delhi High Court in the case of Sarthak Securities. Ltd. Vs. ITO, 329 ITR 110 has held that the reopening on mechanical basis is void even where assessment was not made u/s 143(3) of the Act. Similarly, in the case of Signature Hotels Pvt. Ltd. Vs. ITO [2011] 338 ITR 0051 Hon'ble High Court has held that where the notice u/s 148 was based on report from Director of Income-tax that credit entry in accounts of assessee was an accommodation entry and the Assessing Officer has not examined the evidence and issued notice u/s 148 of the Act, such notice was not valid.
5.3.3 In the case under consideration, I find that the AO has not specified the persons from whom the appellant has received accommodation entries and has also not specified the persons who have given the statement regarding accommodation entries. In view of the above facts, respectfully following the decision of jurisdictional High Court in the case of Sarthak Securities Ltd. (supra) and in the case of Signature Hotels Pvt. Ltd. (Supra), I hold that the notice issued by the AO u/s. 148 was not a valid notice and the same is therefore, quashed. The grounds of appeal are allowed.
6. Ground no. 3 to 5 are directed against the addition of Rs. 30,00,000/- u/s.68 of the Act. Since I have quashed the notice u/s.148 in para 5.3.3 of the order, these grounds become academic in nature and hence not adjudicated.”
9.1 On going through the above finding of the ld. CIT(A), we find that in the reasons recorded by the AO there is no mention of names of the persons who are alleged to have given the accommodation entries. It simply says that "the concern party" has provided the accommodation entries to various parties. However, it does not specify as to which concerned party has provided the accommodation entries. The reasons recorded also does not mention as to who are the persons whose statement was recorded and what those persons have stated in their statements and whether they have stated anything specifically against the appellant. We further find that the name of the entry provider is not mentioned in the reasons recorded by the A.O. We further find that the AO has mentioned that as per the information available, the amount of RS.30,OO,000/- was an accommodation entry.
9.2 We note that the Hon'ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co. Vs. CIT [2008] 175 Taxman 262 (Delhi) has held that if in the reasons supplied to the assessee, there was no allegation that it had failed to disclose full and truly all material facts necessary for assessment and because of its failure there had been escapement of income Chargeable to tax, reopening of assessment after expiry of four years' from end of relevant assessment year was without jurisdiction. We further find that the Hon'ble Delhi High Court in the case of Sarthak Securities. Ltd. Vs. ITO, 329 ITR 110 has held that the reopening on mechanical basis is void even where assessment was not made u/s 143(3) of the Act. Similarly, in the case of Signature Hotels Pvt. Ltd. Vs. ITO [2011] 338 ITR 0051 Hon'ble High Court has held that where the notice u/s 148 was based on report from Director of Income-tax that credit entry in accounts of assessee was an accommodation entry and the Assessing Officer has not examined the evidence and issued notice u/s 148 of the Act, such notice was not valid.
9.3 In view of the above, we find that the AO has not specified the persons from whom the assessee has received accommodation entries and has also not specified the persons who have given the statement regarding accommodation entries. Therefore, respectfully following the decision of jurisdictional High Court in the case of Sarthak Securities Ltd. (supra) and in the case of Signature Hotels Pvt. Ltd. (Supra), we uphold the action of the Ld. CIT(A) that the notice issued by the AO u/s. 148 was not a valid notice and the same was therefore rightly quashed, which does not need any interference on our part, hence, we uphold the decision of the Ld. CIT(A) on this issue and decide the same favour of the Assessee and against the Revenue. Accordingly, the Appeal filed by the Revenue stands dismissed.
9.4 As regards the Assessee’s Cross Objection is concerned, since we have already dismissed the Revenue’s Appeal, the Cross Objection has become infructuous and dismissed as such.
In the result, the Appeal filed by the Revenue and Cross Objection filed by the Assessee stand dismissed. Order pronounced in the Open Court on 22/03/2017.