ITO, NEW DELHI vs. M/S. O.J. SECURITIES (P) LTD, NEW DELHI

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ITA 3464/DEL/2009Status: DisposedITAT Delhi20 March 2017AY 2001-028 pages

In favour of the Revenue: the Revenue's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the reopening of assessment was bad in law because the AO had not applied his mind to the information received and had merely extracted it to conclude escapement of income. The Tribunal upheld the CIT(A)'s order on merits.

What were the facts?

The Assessing Officer (AO) initiated reassessment proceedings under Section 148 based on information from the Investigation Wing regarding accommodation entries. The assessee objected, arguing the reopening was illegal due to non-application of mind by the AO.

What were the issues?

Whether the reassessment proceedings were validly initiated based on the reasons recorded by the AO, and whether the AO had applied his mind to the information received.

Which sections of the Income-tax Act were involved?

Section 148,Section 147

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(4)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI

Before: SHRI J. SUDHAKAR REDDY & MS. SUCHITRA KAMBLE

Appellant by : Sh. Rajesh Kumar, Sr.D.R. Respondent by : Sri Somil Aggarwal, Adv. ORDER PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER

This is an appeal filed by the Revenue directed against the order dated 6.5.2009 of Ld.CIT(A)-XVI, New Delhi pertaining to the Assessment year (A.Y.) 2001-02. The assessee has filed Cross Objection.

2. We first take up the Cross Objection filed by the assessee. The grounds of the C.O. read as under.

“1. That the notice issued under section 148 is illegal and void ab initio and is, therefore, liable to be quashed.

2.

That there was no "reason to believe" that petitioner's income has escaped assessment which is "must" for assuming lawful jurisdiction u/s 147 and such absence of reason to believe is evident from the plain reading of the reason recorded which does not contain even this basic jurisdictional element.

3.

That the reopening can be done on the basis of "reason to believe" that income has escaped assessment and recording of "reason" before the issue of notice u/s 148 is must as Per provision of Sec. 148 which in this case has not been recorded and thus basic jurisdictional fact is missing in this case thus vitiating the issue of valid notice u/s 148. All that has been recorded in the garb of the purported "reason" is the proposal to the Additional CIT in terms of Sec.151. which is different from the "reason" recorded as per the decision of Hon'ble Delhi High Court in the case of Vinita Jain 212 CTR 45.

4. Reopening is barred because the assessing officer had not himself formed any belief as to the escapement of income but he had merely acted upon the direction of the Investigation Wing, New Delhi.

5. Notice under section 148 is illegal because the notice has been issued based upon a general statement of one person that he was doing only name lending.

6. That the assessment- order passed by the assessing officer on the basis of void notice is illegal and unjustified and, therefore, should be quashed.

7. That the assessee-company craves leave to add, amend, modify or delete any ground at the time of hearing.”

3. The Ld. counsel for the assessee filed a copy of the reasons recorded by the AO for initiating reassessment proceedings under section 148 of the act for the assessment year 2001-2002. He took this bench through these reasons and submitted that there is total non application of mind by the A.O. to the material before recording the reasons for re-opening. He relied upon the decisions of the jurisdictional high court in the case of G&G Pharma India Ltd. vs. ITO as well as the decision of Delhi C Bench of the Tribunal in ITA 3407/Del/13 in the case of GS Control vs. ACIT and argued that the reopening of assessment is bad in law. On merits he relied on the order of the Ld.CIT(A).

4.

The ld.D.R. on the other hand submitted that the reopening is done pursuant to information received from the DDIT and the AO on being satisfied that there is prima facie escapement of income, recorded reasons for reopening of assessment. He relied on the following case laws.

ITO vs. Purushottam Das Bangur and Another (SC) 224 ITR 362 Midland Fruit and Vegetable Products (India) Pvt.Ltd. 208 ITR 266 He prayed that the reopening be upheld. He also made submissions on merits by relying on the order of the A.O.

5.

After hearing rival submission we find the reasons recorded are as follows.

“The Investigation Wing, New Delhi has sent a detailed information regarding entry operators and beneficiaries. The list of beneficiaries consists of the name of the above mentioned assessee. As per information, the assessee company has obtained accommodation entries from the following parties during the financial year 2000-2001 relevant to A.Y. 2001-02. Beneficiary Beneficiary Value of Date on which Name of Bank from Bank Name Bank entry entry taken account which Branch taken holder of entry given Rs. entry giving account HDFC Asaf Ali 1,00,000 19.3.2001 Gian SBP Road Chand Jain HDFC - Do - 1,10,000 - Do - Satish SBP Kumar PSB Darya Ganj 1,20,000 20.3.2001 Shakuntla Jai Laxmi

Devi Coop Bank PSB - do - 2,00,000 24.3.2001 Kuldeep Innovative Textiles P.Ltd. PSB - Do - 3,00,000 - Do - Division - Do - Trading P.Ltd. HDFC - 1,00,000 - 19.3.2001 Anil Kumar - SBP Sharma HDFC - 1,00,000 - 19.3.2001 Rajiv - SBP Kumar Aggarwal Since the assessee has received entries, I have reason to believe that income of the assessee to the extent of Rs.10,30,000/- has escaped assessment for which action u/s 147 of the I.T.Act is proposed to be initiated for the A.Y. 2001-02.”

6.

The Jurisdiction High Court in the case of Principal CIT vs. G&G Pharma India Ltd. in ITA 545/2015 vide order dt. 8.10.2015 at paras 12 and 13 it was held as follows: 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 Feb. 2003, from four entries which were received by the assessee on a single date i.e. 10th Feb., 2003, from four entries which were termed as accommodation entries, which information was given to him by the Director 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 u/s 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 decision discussed, 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. A perusal of the reasons recorded demonstrate total non application of mind by the AO. Thus applying the proposition laid down by the Jurisdictional High Court in G&G Pharma India (supra) we hold that the reopening of assessment is bad in law.

6(a) The Hon’ble Delhi High Court in the case of Signature Hotels (P) Ltd. Vs. ITO and another, reported in 338 ITR 51 (Delhi) has under similar circumstances held 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.”

6(b). In the case of CIT vs. Atul Jain reported in 299 ITR 383 it has been held as follows. “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.”

7.

Applying the propositions laid down in the above cited judgements to the facts of the case, we have to necessarily quash the reopening of the assessment as bad in law as in the reasons recorded it is apparent that the AO has not applied his mind to the information received from the DDIT. The information is simply extracted and a conclusion is drawn that as the assessee has received entries his income has escaped assessment.

7.1. Coming to the judgements relied upon by the Ld.D.R., the Hon’ble Delhi High Court had considered these decisions and has after explaining the same, held that the A.O. has to independently apply his mind to the material received before coming to a conclusion that income escaped assessment and then only recorded reasons for reopening.

8.

In view of the above discussion, we respectfully follow the binding judgements of the Jurisdictional High Court and quash the reopening of assessment as bad in law.

9.

Even on merits, we find no infirmity in the order of the Ld.CIT(A) wherein from page 29 to page 33 he had discussed the factual and legal issues. The Ld.D.R. could not controvert these factual findings of the Ld.CIT(A). Hence we uphold the same and dismiss the appeal of the Revenue.

10.

In the result assessee’s C.O. is allowed and revenue’s appeal is dismissed.

Order pronounced in the Open Court on 20th March, 2017.

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