M/S. STATCON POWER CONTROLS LIMITED,NEW DELHI vs. ITO, NEW DELHI

2. The Ld CIT(A) has erred in confirming the order of the Ld. AO in issuing notice under section 148 and subsequent proceedings thereafter against the Appellant Company.

Facts of the case in brief are that the assessee filed the return of income on 31.10.2005 declaring an income of Rs.15,05,220/- which was processed u/s 143(1) of the Act. Subsequently, the AO received information from the Investigation Wing, Delhi that the assessee was one of the beneficiaries of the bogus/accommodation entries as detailed below: S. No. Value of entry taken Date on which entry taken Name of the account holder (Rs.) of entry provider 1. Rs.12,00,000 24.02.2005 GEEFCEE FINANCE LIMITED

Accordingly, notice u/s 148 of the Act was issued to the assessee for reopening the assessment u/s 147 of the Act. The assessee asked the AO to provide all the material for which the proceedings u/s 148 of the Act had been initiated. The AO supplied the copy of statement of Sh. Tarun Goyal. In response, the assessee replied as under:

However, the AO did not find merit in the submission of the assessee and made the addition of Rs.12,00,000/- which was received from M/s Gee Cee Finance Ltd., by treating the same as undisclosed income of the assessee.

Being aggrieved the assessee carried the matter to the ld. CIT(A) and challenged the validity of the issuing the notice u/s 148 of the Act and submitted as under: “a) That AO has reopened the case of the appellant without proper application of his mind which is a mandatory requirement and has solely relied upon the information received from DIT (Investigation Wing), New Delhi, .As per the reasons supplied by the AO to the appellant he has mentioned that an information regarding entry operators and their beneficiaries was received from the Investigation Wing of the Income Tax Department that appellant has received the accommodation entry of Rs. 12,00,000 from M/s Geecee Finance Limited and that these accommodation entries involving total amount of Rs 12,00,000 represent assessee's own unaccounted money and therefore he has reason to believe that income of Rs 12,00,000 has escaped assessment. These reasons shows that the AO has not applied his mind and has without enquiring into the authenticity of the information received from the investigation wing has just reopened the case of the appellant which itself makes the proceedings illegal. The AO has formed his so called reasonable belief on vague and uncertain grounds as he has not probed into the information received from the investigation wing and solely relying on it for reopening the case of the appellant. b) That the AO relied upon the information received from the Investigation wing of the Income Tax Department that during the relevant assessment year the appellant had received the accommodation entry of Rs 12,00,000 from M/s Geecee Finance Limited. The AO has not mentioned anything in his reasons recorded that he has made any efforts to enquire or probe into the matter further on by going through certain documents or material before him, if any, to confirm the genuineness and truthfulness of the information received from 5 Statcon Power Controls Ltd. the Investigation Wing. Instead he simply without applying his mind believing the information sent to him to be true had reopened the case of the appellant by stating that this amount represent assessee's own unaccounted money. c) That in the reasons recorded by the AO, the same are vague as much as no date of the transaction is mentioned to show that the transaction falls in the relevant assessment year for which reopening is done. Further in the reasons recorded which are on basis of information received from the Investigation Wing of Income Tax Department no where the details of the transaction i.e. the instrument Number , Date etc through which such amount of Rs 12,00,000 was paid to the Appellant Company and the Name and Address of the Bank is also not provided or mentioned therein leaving aside the date of the said transaction which is also not mentioned herein making the said information vague and reopening on basis of such incomplete information is wrong and liable to be dropped. d) That from the reasons recorded it is not evident that any approval has been received from the CIT or not. e) That there is no material on record to show that the amount received by the Appellant Company is an accommodation entry or Appellant' own unaccounted money. The allegation on which the reopening has been done is without any basis. f) That as per copy of the reasons recorded it is evident that the notice u/s 148 has been issued on basis of information received from ADIT(Inv.) Unit IV, New Delhi which itself was based on the investigation done and statement recorded of Shri Tarun Goyal CA who is mentioned to be an entry operator. Thus no such copies of the statements were suo moto provided to the Appellant by the AO and only when specific request for the same was made vide letter dated 22/02/2013 the AO 6 Statcon Power Controls Ltd. provided the copies of statements of Shri Tarun Goel to the Appellant on 22/02/2013. g) That the Appellant has made a specific request vide its letter dated 28.02.2013 to provide an opportunity of cross examining Shri Tarun Goyal on expenses of the Appellant on basis of whose statement the case of the Appellant was reopened but the Ld AO has not provided any opportunity to the Appellant to cross examine Shri Tarun Goyal thereby making the reassessment proceedings illegal and void. h) That in respect of the statements provided by the AO of Shri Tarun Goel we would like to submit as follows which we also mentioned before AO vide letter dated 28.02.2013 (PB 110- 111): • That on page 204 of the Statement recorded (PB 132} of Shri Tarun Goyal he has mentioned that he is into business of providing mail and message services and accounting and book keeping services to _ various companies from time to time . Further on Page 205 of his statement (PB 133)on being asked about the details of companies of which books of accounts are lying at his premises , Shri Tarun Goel gave the following names : a) Compari Fiscal Services (P) Ltd. b) Adonis Finance Limited. c) Delhi Share Shoppee. d) Bhawani Portfolio Pvt. Ltd. .. e) Tauras iron and Steel Co. (P) Ltd. f) Thar Steels Pvt. Ltd. g) Geefcee Finance Limited h) Corporate Finance Pvt. Ltd.

The reliance was also placed on the following case laws: � Calcutta Discount Co. Vs ITO and Anr. (1961) 41 ITR 191 (SC) � Ganga Saran and Sons P. Ltd. Vs ITO and Anr. (1981) 130 ITR 1 (SC) 9. The ld. CIT(A) after considering the submissions of the assessee observed that the notice u/s 148 of the Act was issued after proper recording of reasons for reopening and statutory approval was taken. He further observed that the notice was issued on time i.e. 31.03.2012 and the assessee had regularly participated in the assessment proceedings, so there was no reason to raise grounds against sustenance of notices and recording of reason. Accordingly, the reopening was held as valid.

Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the AO reopened the assessment only on the basis of information from the Investigation Wing and did not apply his own 9 Statcon Power Controls Ltd. mind. It was further submitted that opportunity to cross-examine Sh. Tarun Goyal on the basis of whose statement, the case of the assessee was reopened was not given and even in the statement given by Sh. Tarun Goyal name of the assessee was not appearing. A reference was made to page nos. 128 to 133 of the assessee’s paper book which is the copy of the statement of Sh. Tarun Goyal. It was submitted that the reasons recorded clearly revealed that the notice u/s 148 of the Act was issued only on the basis of information from Investigation Wing and no mind was applied by the AO. A reference was made to page nos. 5 & 6 of the assessee’s paper book which is the copy of the reasons recorded and it was submitted that reopening on the basis of information from the Investigation Wing and without applying the mind by the AO was not valid. The reliance was placed on the judgment of the Hon’ble Jurisdictional High Court in the case of Principal Commissioner of Income Tax-4 Vs G & G Pharma Ltd. reported at 384 ITR 147.

In his rival submissions the ld. DR supported the orders of the authorities below and submitted that the income of Rs.12,00,000/- escaped assessment, therefore, the reopening u/s 148 of the Act was valid.

I have considered the submissions of both the parties and carefully gone through the material available on the record. To resolve the present controversy, it is relevant to discuss the reasons recorded by the AO 10 Statcon Power Controls Ltd. while issuing the notice u/s 148 of the Act and subsequently reopening the assessment u/s 147 of the act. The copy of the said reasons is placed at page no. 6 of the assessee’s paper book and reads as under: “Return of income in this case was filed on 31.10.2005 declaring total income of Rs. 15,05,220/-. Subsequently, the case was processed u/s 143(1) on 22.02.2006 at an income of Rs. 15,05,220/-. The Directorate of Income Tax (Inv.), New Delhi has carried out a detailed enquiry about the persons/companies engaged in the business of providing accommodation entries to various companies. Information has been received alongwith the statements of persons who had admitted that they were in the business of providing accommodation entries and they were not doing any business but were engaged in the activity of providing accommodation entries to other concerns. These persons used to issue cheques in lieu of cash received after deducting their commission and these cheques were generally issued as share application money/unsecured loans. An information regarding entry operators and their beneficiaries was received from Addl. DIT(Inv.), Unit-IV, New Delhi vide letter No. Addl. DIT(Inv.)/Unit-IV/Beneficiaries/2008-09/391 dated 31- 03-2009 containing a list of beneficiaries of accommodation entries provided by Sh. Tarun Goyal, C.A, 13/34. WEA Arya Samaj Road, Karol Bagh, New Delhi and took entry from the entry operator as detailed below:- Name of Beneficiaries Amount Total Name of company floated by Sh/Tarun Goyal Statcon Power Controls Ltd. Geefcee Finance limited 12,00,000 12,00,000

On a similar issue the Hon’ble Jurisdictional High Court in the case of Principal Commissioner of Income Tax-4 Vs G & G Pharma Ltd. (2016) 384 ITR 147 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 12 Statcon Power Controls Ltd. 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 on the information received from the Investigation Wing of the IT Department and no other material was in his possession. He did not apply his independent mind. Therefore, the reopening u/s 147 of the Act by issuing the notice u/s 148 of the Act was not valid. In that view of the matter, the reassessment framed by the AO is quashed.

Since, I have set aside the assessment, therefore, no findings are given on the issue raised by the assessee on merit.

In the result, appeal of the assessee is allowed. (Order Pronounced in the Court on 16/12/2016)