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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-3’, NEW DELHI
Before: SHRI J. SUDHAKAR REDDYSmt. Mamta Singh vs.
ORDER ITA 2407/Del/15 is filed by the assessee Smt. Mamta Singh directed against the order of the Ld. Commissioner of Income Tax (Appeals) dated 16.3.2015 for the Assessment Year (A.Y.) 2005-06. ITA 2408/Del/15 is filed by the assessee Ms. Himsikha directed against the order of the Ld.Commissioner of Income Tax (Appeals) dated 16.03.2015 for the A.Y. 2005-06.
~ 1 ~ 1.1. As the facts, issues and findings of the parties in both these cases are identical, for the sake of convenience I heard them together and dispose of the same by way of this common order.
Facts in brief:- Both the assessees originally filed returns of income and the same were processed under section 143(1) of the Income Tax Act, 1961 (the Act). The assessing officer (A.O.) consequent to receipt of information from the Investigation Wing recorded reasons on 22.3.2012 after obtaining approval from ACIT, Range 1 , Faridabad to reopen the assessment. The reasons recorded in case of Ms. Himsikha is extracted for ready reference.
“As per information available in this office, the assessee has booked Long Term Capital Gain amounting to Rs.19,82,317/- . The assessee was given physical shares and these shares were demated and sold in the market. In this process, the assessee booked artificial L TCG, through which their unaccounted income was converted into accounted income during the F.Y. 2004-2005 relevant to A.Y. 2005- 2006. On perusal of information it reveals that the assessee has acted as beneficiaries who has routed his unaccounted money through the bank accounts of the entry operators. The Long Term Capital Gain have been taken in lieu of certain percentage of commission paid to the entry operators again out of the undisclosed sources of income. From the record of this office, it is found that no assessment has been completed u/s 143(3) of the I.T. Act, 1961. The details of the entries
~ 2 ~ taken by the assessee during the F.Y. 2004-2005 relevant to assessment year 2005-06 are as under:- Beneficiary’s Beneficiary D.P. Value of D.P. Demat Demat Name I.D.No. I.D.No. Entry quantity confirmation request taken date no. Ms.Himshikha 10083285 300724 1982317 8500 7.9.2004 56459
Keeping in view of the above facts and circumstances of the case, I have reason to believe that income of the assessee to the extent of Rs.19,82,317/- plus commission Rs.3,964/- @ 0.20% has escaped assessment for assessment year 2005-06. Since no assessment has been completed u/s 143(3) of the IT Act, 1961, approval of the Addl. Commissioner of Income Tax, Range 1, Faridabad is solicited for issuing notice u/s 148 of the Act in terms of the provisions of s.151(1) of the Act. Issue notice u/s 148 for Assessment Year 2005-2006.”
2.1. The assessee has included a copy of the form used for obtaining approval of ACIT, Range I, Faridabad at pages 64-65 of the paper book at , column number 12. The ACIT, Range I has recorded his approval as follows: “ Yes” . There is no date on which the signature is obtained. The A.O. passed an order under section 143(3) wherein he described the modus operandi of the scam wherein accommodation entries are provided for bogus long term capital gains. He recorded that the Investigation Unit-IX Mumbai conducted a search on 24.1.06 and 14.2.2006 on certain beneficiaries who had purchased long term capital gains. Purchase and sale of shares for booking bogus long term capital gains were found to have been made from about 8 companies out of which Fast Tract Entertainment Ltd. was a company. He also recorded that during the course of search and survey statements of various persons were recorded on oath by the ~ 3 ~ Investigation Wing and that they have confirmed that in case of shares of Fast Track Entertainment Ltd. they issued bogus purchase bills and that these transactions were not genuine and that they had charged commission of 0.02 paise per share or 0.02% of the bill amount. After extracting the statements of the persons as recorded by the Investigation Wing and considering the submissions of the assessee as well as the evidences produced, the A.O. has at para 8 and 9 held as follows.
“8. In view of the above facts and circumstances of the case, it is held that the assessee arranged back dated purchased bills of 25000 shares of Fast Track Entertainment, from DPS Share & security Pvt. Ltd. through accommodation entries, in lieu of, certain percentage of commission ranging between 0.02% to 0.2%, and booked bogus Long Term .Capital Gain to the tune ofRs.19,01,919/- during the F.Y 2004- 05. In this way, the assessee introduced her own unaccounted money in her books in the guise of LTCG. The entire Long Term Capital Gain of Rs.19,01,919/- alongwith commission of Rs.3,803/- paid thereon, are, therefore, treated as income of the assessee, earned from undisclosed sources and brought on record by way of booking bogus long term capital gain. Hence, the same is added in the income of the assessee. In this way, the addition of Rs. 19,05,722/- is made, in the income of the assessee on this account. I am also satisfied that the assessee has concealed and furnished inaccurate particulars of her income in the return to the extent of Rs. 19,05,722/-, for which, penalty proceedings u/s 271 (l)(C) of the l.T Act has been initiated separately.
Similarly, the assessee failed to prove the genuineness of purchase of 8500 shares of Fast Track Entertainment Ltd. claimed to had been purchased from Sh. Vijay Bhagwan Dass Shah during the F.Y 2003- 04, as discussed above. Hence, the entire long term capital gain claimed on the sale of 8500 shares of Fast Track 'Entertainment Ltd ~ 4 ~
of Rs.6,10,430/- and claimed in the return under the head long term capital gain without paying STI, is also treated as the assessee’s own money, earned from undisclosed sources and brought on record by way of claiming bogus long term capital gain and the same is assessed as income from other sources instead of Long Term Capital Gain as declared by the assessee. An amount of Rs.3,000/- is also added on estimate basis treating it as commission paid by the assessee for arranging the' above accommodation entries. In this way, addition of Rs.6,13,430/- (i.e. 6,10,430 + 3,000), is made, in the income of the assessee. I am also satisfied that, the assessee has furnished inaccurate particulars of her income in the return to the extent of Rs.6,13,430/-, for which, penalty proceedings u/s 271(1)(C) of the IT Act has been initiated separately.
In view of above, net income of the assessee is computed as under:-
Income from business Rs.1,29,851/- 2. Income from other Rs. 2,45,978/- sources as per return Rs.19,05,722/- Add: Additions made as discussed in para 8 above Additions made as Rs. 6,13,430/- Rs.25,19,152/- discussed in para 9 above 28,94,981/- Less: Deduction u/s 80L Rs.12,000/- Total: 28,82,981/- Rounded Off 28,82,980/- Assessed at Rs.28,82,980/-. Charge interest u/s 234B of the Act. Issue copy of the order, demand notice, challan and notice u/s 274 r.w.s. 271 to the assessee for concealing and furnishing of inaccurate particulars of income as discussed in paras 8 and 9 above.” ~ 5 ~
Aggrieved the assessee carried the matter in appeal. The assessee raised additional ground before the First Appellate Authority. This additional ground challenges the reassessment proceedings as without jurisdiction in the absence of mandatory approval u/s 151(2) of the Act and for purely mechanical approval without any application of mind by the approving l authority. This additional ground was dismissed by the First Appellate Authority by holding that the assessee has given no reason for not taking this ground originally at the time of filing the appeal.
3.1. On the issue of reopening of the assessments the Ld.CIT(A) upheld the reopening and rejected various contentions raised by the assessee. On merits the Ld.CIT(A) applied the test of human probability and based on the judgement of the Apex Court in the case of CIT vs. Durga Prasad More (1971) 82 ITR 540 and Smt.Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC) as well as the decision of Punjab & Haryana High Court in the case of Som Nath Maini vs CIT (2008) 306 ITR 414 (Punjab & Haryana) upheld the addition made by the A.O. He recorded that internet search made by him revealed that SEBI had initiated enquiry in the context of irregularities of the above scrips of Fast Track Entertainment Ltd. He recorded his observations from pages 23 to 30 of his order at paras 28 to 30. He upheld the order of the A.O.
Aggrieved the assessee is in appeal before me.
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The Ld.Counsel for the assessee submitted that the reassessment is bad in law for the reason that: (a) Approval u/s 151(2) given by the ACIT was mechanical; (b) The Ld.CIT should have admitted this ground as it is purely a legal ground and the facts were on record; (c) On similar facts and circumstances in the case of Anjali Gupta the SMC-2 Bench of the Delhi Tribunal in ITA 2521/Del/2015 for the A.Y. 2005-06 order dt. 6th November, 2015 held that the reopening is bad in law by following the decision of the Jurisdictional High Court in the case of United Health Care P.Ltd. vs. CIT (2002) 258 ITR 317 (Del.) (d) The reopening is bad in law as the proceedings were initiated only on the basis of certain information received from the Investigation Wing, Mumbai, without independent verification as well as application of mind. That the prima facie correctness of the information was not verified by the A.O. (e) In the statement recorded from Shri Parteek C Shah the Director of M/s DPS Shares and Securities Pvt.Ltd, which is the broker company, through whom the assessee had purchased shares, no question was put by the Investigation Wing of Mumbai regarding purchase of shares by the broker for the assessee company. The question related to purchase of shares for some Mathur Bhai Zinjuwadia HUF only. As far as statement recorded from the broker Shri Vijay Bhagwandass & Co., the query was in respect of shares purchased by some Patil group and not by the assessee. Thus it is argued that reasons were recorded in a mechanical manner without application of mind. Certain case laws were relied upon by the assessee for this proposition, which we would be discussing as and when required.
~ 7 ~ 5.1. On merits it was submitted that Shri Prateek Shah , the Director of the broker co. M/s DPS Shares and Securities Pvt.Ltd. had never stated that the transactions for purchase and sale of shares of the assessee are bogus. He relied on the decision of the Bangalore Bench of the ITAT in the case of Smt.Kalpana Mehta order dt. 5.10.2012 wherein similar purchase and sale of shares of Fast Tract Entertainment Ltd. was considered and the issue decided in favour of the assessee. 5.2. That in case of other similar cases which were reopened u/s 148 of the Act the A.O. held that, similar transactions with the very same brokers and the purchases of the very same shares of M/s Fast Track Entertainment Ltd. were genuine. Assessment orders of Sanjiv Grover, Dharmapal Grover, Vineet Gupta, Mangi lal Gupta were filed. 5.3. That as the revenue relied on the statement of Shri Prateek Shah for making the addition, he is a witness of the department and the demand of the assessee for cross examination of this witness was not provided. Hence the statement recorded behind the back of the assessee cannot be relied upon. The statement of the broker dt. 28.3.2006 has no relevance, as he mentioned only about purchases and sales of Mr. Mathur Bhai Zinjuwadia and not in respect of the assessee. 5.4. The genuineness of the transaction stand proved as : (a) The purchase of the shares for the A.Y. 2004-05 stood accepted; (b) Purchases were through registered stock brokers and are evidenced by proper bills and contractor notes; (c) Statement of accounts of the assessee in the books of the broker evidencing purchases were filed. Sale bills were produced evidencing sale
~ 8 ~ to M/s Galaxy Broking Ltd. and M/s Integrated Master Securities Pvt.Ltd.; (d) No statement of selling brokers were recorded and there is no adverse material showing that the sale has not taken place; (e) Account copies were filed along with internet generated price of the shares as on that date and no discrepancies were pointed out; (f) On additions made for purchases made through broker Mr.Vijay Bhagawan Das Shah and Co. a similar argument was made and evidences produced. For the sake of brevity I do not extract the same.
Ld. D.R. on the other hand strongly opposed the contentions of the assessee by submitting that the reasons recorded were with applicajtion of mind as is evident from a plain reading of the same and that no reliance was placed mechanically on the opinion received from the Investigation Wing of the dept. from Mumbai. 6.1. He relied on the decision of Hon’ble Delhi High Court in the case of Principal CIT vs. Minakshi Overseas Ltd. and states that “Yes, I am satisfied” meets the requirement as mandated by S.153(1)(1) of the Act. 6.2. He relied on the order of the First Appellate Authority and submitted that the modus operandi of the assessee is such that all necessary evidences are produced in support of the transactions tough on the face of it, these are bogus transactions. He relied on the theory of preponderance of probability and relied on certain case laws and argued that in this case the opponent is not true.
~ 9 ~ 6.3. He relied on the findings of the First Appellate Authority and the independent investigation done by the First Appellate Authority by way of search from internet, which disclosed SEBI’s finding that the said company M/s Fast Track Entertainment Ltd., declared very low income of Rs.2.01 lakhs and marginal net profit of Rs. 1.1 lakhs while during the F.Y. 2003-04, the share value increased from Rs. 13.16 to Rs. 33.30 (153%) and it continued to increase and reach Rs.60 during June, 2004. He took this Bench to pages 34 of CIT(A)’s order and relied on the same. He also relied on certain case laws which I would be dealing as and when required. He prayed that the order of the Ld.CIT(A) be upheld and the appeal dismissed.
After hearing rival contentions I hold as follows.
The Ld.CIT(A) has erred in not admitting the legal ground taken by the assessee. In fact this is not an additional ground. Certain grounds are taken by the assessee in from no.35 and these grounds can always be revised prior to the date of hearing. This ground challenges the jurisdiction of the A.O. This in one sense, is not a new ground.
9. Be it as it may, this is a legal ground and does not require investigation into the facts. Hence the same is admitted.
I have perused the approval given by the ACIT in both these cases in the prescribed form. This is placed at pages 64 and 65 of the paper book. In both the cases in the form for recording reasons for initiating proceedings u/s 147 of ~ 10 ~ the Act and for obtaining approval of ACIT-I, Faridabad, no date whatsoever is appearing. Against col.no.12, the Ld.ACIT, Range I has written “yes” and signed.
10.1. The SMC 2 Bench of the Tribunal in ITA 2521/Del/2015 has at para 5 of the order dt. 6.11.2015 in the case of Anjali Gupta, has held as follows. “5. On considering the rival contentions I find that the ‘D’ Bench of the New Delhi Tribunal in the case of M/s Kansal Fincap Ltd. vs. ITO in and 2662/Del/2013 vide order dt. 31.8.2015 where at page 11 para 16 it was held as follows.
“16. Having gone through the decisions relied upon by the Ld.A.R. we find that the ratios laid down therein supports the contentions of the Ld.A.R. that the approval as required u/s 151 of the Act was granted by the Ld.ACIT to initiate the proceedings without application of mind in a mechanical manner, the AO was supposed to dispose of the objections raised by the assessee against the reopening proceedings by passing a speaking order meeting out each and every objection raised therein by the assessee, and the Assessing Officer has initiated the reopening proceedings without examining even prima facie the correctness of information received from the Investigation Wing of the Department wherein it was informed that as per the statement of Shri Mahesh Garg recorded by them, there was escapement of assessable income in the hands of the assessee. In the cited decisions in the cases of United Electrical Co. (P) Ltd. vs. CIT ( supra) - Chhaganmal Rajpal Vs. S.P. Chaliha ( supra), 0 Central India Electric Supply Co. Ltd. vs. ITO (supra), the approval of the Addl.
~ 11 ~ CIT/CIT/Board was. obtained under the remarks "Yes, I am satisfied that it is a fit case for issue of notice under sec. 148 of the Income-tax Act", "Yes", and "Yes" respectively. The Hon'ble Delhi High Court in the case of United Electrical Co. (P) Ltd. vs. CIT (supra) after analyzing the satisfaction/approval was pleased to hold that CIT is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. The said power cannot be exercised casually in a routine manner. Again the Hon'ble Supreme Court in the case of Chhugamal Rajpal Vs. S.P. Chaliha (supra) has been pleased to observe that Learned CIT did not himself record that he was satisfied that this was a fit case for the issue of a notice under sec. 148 of the Act. To question No. 8 in the report which reads "whether the CIT is satisfied that it is a fit case for the issue of notice under sec. 148", he just noted the word "yes" and affixed his signature there under. The Hon'ble Supreme Court was of the opinion that if only the CIT has read the report carefully, he could never have come to the conclusion on the material before him that it is a fit case to issue notice under sec.
The Hon'ble Supreme Court pleased to hold that the important safeguards provided under section 147 and 151 were lightly treated by the ITO-as well as by the CIT. Both of them appear to have taken the duty imposed on them under these provisions as of little importance. In the case of ITO vs. N.C. Cables Ltd. (supra) where also the approval under Sec. 151 was recorded as "approved" and there also the reopening proceedings were initiated en the basis of information received from the Investigation Wing of ~ 12 ~
the Department and the same Mr. Mahesh Garg was involved, the issue raised before the Delhi Bench of the ITAT was as to whether such approval would meet the requirements prescribed under sec.151 of the Act. The ITA T after detailed deliberation en the issue came to the conclusion that the reopening was bad in law for the reasons that the Ld.CIT had not recorded his satisfaction as contemplated u/s 151 of the Act. Similar view has been expressed in the remaining decisions cited by the Ld.A.R. Respectfully following the ratios laid down in the cited decisions, we hold that the reopening is bad in law for the reason that Ld.ACIT has not recorded his satisfaction as contemplated u/s 151 of the Act.”
5.1. Respectfully following the Coordinate Bench decision in the case of M/s Kansal Fincap Ltd. (supra), wherein the Hon’ble Jurisdictional High Court in case of United Electrical Co.P.Ltd. vs. CIT (2002) reported in 258 ITR 317 (Del) and the judgement of Hon’ble Supreme Court in the case of Chhugamal Rajpal vs. S.P.Chalina & Others reported in 79 ITR 603 (S.C.) have been applied, I hold that the reopening is bad in law, for the reason that the ACIT has granted approval with a simple mere “yes”. Such a remark cannot be considered as approval with application of mind. The reopening of assessment is bad in law.”
10.2. The Hon’ble Delhi High Court in the case of Pr.CIT vs. M/s NC Cables Ltd. ITA 335/2015 order dt. 11th January, 2017 at para 11 held as follows.
~ 13 ~
11. Section 151 of the Act clearly stipulates that the CIT(A), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression ‘approved’ says nothing. It is not as if the CIT(A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the rpesent case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the Court is satisfied that the findings by the ITAT cannot be disturbed.
10.3. Respectfully following the propositions of law laid down in this judgement, I have to necessarily hold that the mandatory requirements in terms of S.151(1) of the Act for initiating action u/s 147 of the Act has not been followed. Apparently there is no application of mind by the Ld.ACIT before granting approval. There is no mention of the date of approval or any noting which indicates application of mind. The approval is mechanical as he just mentioned the work “yes”. Thus I quash the reopening of assessment as bad in law.
10.4. As I have already quashed the reopening on the ground that the assessment is bad in law, I do not adjudicate the other arguments raised by the assessee on reopening of assessment as well as on merits, as it would be an academic exercise.
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In the result both the appeals of both the assesses are allowed.
Order pronounced in the Open Court on 23rd January,2017.