M/S. STANDARD WATCH CO. (P) LTD.,NEW DELHI vs. DCIT, NEW DELHI

At the time of hearing, Ld. Counsel of the Assessee, Sh. Raj Kumar, stated that in Quantum Appeal in the relevant assessment order passed u/s. 147/143(3) of the I.T. Act, 1961 has been quashed by the ITAT, ‘G’ Bench, New Delhi vide order dated 30.5.2016.

On the other hand, Ld. DR relied upon the orders of the authorities below.

We have carefully considered the submissions and perused the records.

Without prejudice to the above contentions raised in ground No. 1, the assessee in ground No.2 has questioned the validity of initiation of proceedings under sec. 147 of the Act. In support of this ground, the Learned AR submitted that reopening proceedings have been initiated in the present case on the basis of information received from investigation wing of the department. It was informed by the Investigation Wing that statements of some Shri Mahesh Garg were recorded by the Investigation Wing wherein he had admitted that he had floated several companies/concerns in which no real business was conducted except providing accommodation entry in lieu of cash receipts. It was informed that Dinanath Luhariwala Spinning Mills Pvt. Ltd. was also one of such companies floated and controlled by Shri Mahesh Garg with whom the assessee dealt with and the assessee was one of the beneficiaries of bogus/accommodation entry. The Learned AR submitted that on the basis of said vague information, the Assessing Officer has recorded reasons to belief for initiation of reopening proceedings. He contended that Shri Mahesh Garg is not a director of Dinanath Luhariwala Spinning Mills Pvt. Ltd. with whom the assessee has dealt with. Shri Vinod Garg was director of the said company. No statement of Shri Vinod Garg has been recorded and whatever statements of Shri Mahesh Garg were recorded, these were on the back of assessee. No other material was with the Assessing Officer at the time of initiating the proceedings except information from the investigation wing. The Assessing Officer did not took up any step even to verify the prima facie correctness of contents of report of the investigation wing and he has simply acted upon the information without application of his mind. In this regard, he placed reliance on several decisions including the following one: i) Principal CIT vs. G & G Pharma India Ltd. – ii) CIT vs. Khamdhenu Steel & Alloys Ltd. & Ors. – 248 CTR (Del.) 33; iii) CIT vs. Atul Jain & Ors. – 299 ITR 383 (Del.); iv) CIT vs. SFIL Stock Brooking Ltd.- 233 CTR (Del. 69; v ) Sarthak Securities Co. (P) Ltd.- 329 ITR 110 (Del.); vi) CIT vs. Smt. Pramjit Kaur – 311 ITR 38 ( P&H);

The Learned AR submitted further that initiation of reassessment proceedings is also not valid since it is amounting to 7 change of opinion that too after four years with no failure on the part of the assessee to disclose truly and fully all facts necessary for assessments. He pointed out that earlier assessment was completed under sec. 143(3) of the Act after verification of share capital of Rs.3.03 crores which was inclusive of capital of Rs.25 lacs in question in the present reassessment. The issue was thoroughly examined during the original assessment framed under sec. 143(3) of the Act. The Learned AR referred page Nos. 5 to 14 of the paper book which are copies of original order passed under sec. 143(3) dated 25.2.2004, reasons for selection for scrutiny under sec. 143(3), questionnaire dated 12.11.2003 during original assessment, letter to Assessing Officer dated 7.1.2004 during original assessment, details of fresh share capital received filed to Assessing Officer during original assessment along with letter dated 7.1.2004; letters dated 15.1.2004 etc. filed during reassessment; application form for allotment of shares. The reopening proceedings in the present case has been initiated for the same share capital which was subject matter of the original assessment. The only alleged adverse material for initiation of reopening proceedings is the statement of some Shri Mahesh Garg which were never recorded nor Shri Mahesh Garg was ever produced for cross examination by the assessee hence such statement cannot be relied upon. In support, he placed reliance on the following decisions: i) JSRS Udyog Ltd. – 313 ITR 321 (Del.); ii) Maruti Suzuki India Ltd. vs. DCIT – 356 ITR 209 (Del.); iii) CIT vs. Usha International Ltd. – 348 ITR 485 (Del.) FB; iv) BLV Ltd. vs. ACIT – 343 ITR 129 (Del.); v ) CIT vs. Suren International (P) Ltd. – 357 ITR 24 (Del.); vi) CIT vs. Kelvinator of India Ltd.- 320 ITR 561 (SC);

In ground No.3, the assessee has again questioned the validity of reassessment in absence of adjudication of objection raised by the assessee in terms of the decisions laid down by the Hon'ble Supreme Court in the case of G.K.N. Drive shaft India Ltd.-259 ITR 19 (SC).

The Learned Senior DR on the other hand placed reliance on the orders of the authorities below with the submissions that there was specific information as it has been recorded by the Assessing Officer in the reasons to belief for initiation of reopening proceedings, that the assessee was one of the beneficiaries of bogus/accommodation entries, details of which were made available by the investigation wing of the department to the Assessing Officer. After application of mind on the said information, the Assessing Officer formed his belief that the income pertaining to the assessment year 2001-02 under consideration to the extent of Rs.25 lacs has escaped assessment. She submitted that at the stage of initiation of reopening proceedings, only prima facie belief is formed which is always subject to framing of final assessment under sec. 147 read with 143(3) of the Act. The Learned CIT had also given his approval on the reasons recorded for initiation of reopening proceedings after application of his 9 mind. He was satisfied with the action taken by the Assessing Officer and has accordingly given his remarks “I am satisfied”.

Considering the above submissions, we definitely find substance in the contentions of the Learned AR that in the reasons recorded the Assessing Officer has not alleged that the assessee had not made a true and full disclosure of all material facts necessary for his assessment for that assessment year. In the present case, it is undisputed fact that reopening of assessment was initiated after the expiry of a period of four years from the end of the relevant assessment year and assessment under section 143(3) was already framed on the issue of share capital. Having gone through the decisions cited above, we find that it is an established position of law that failure or omission on the part of the assessee to disclose fully and truly material fact is a jurisdictional pre- condition which must be satisfied for valid initiation of reassessment proceedings. In this regard, we find strength from the recent decisions of Hon'ble jurisdictional High Court of Delhi in the cases of BLV Ltd. vs. ACIT (supra) and CIT vs. Suren International (P) Ltd. (supra). It is pertinent to mention over here that in the present case, original assessment under section 143(3) was framed on 25/2/2004 and vide letter dated 10.10.2002 approval for selection of scrutiny in the case of assessee was obtained on several points including share capital increase from Rs.10,500 to Rs.3,03,10,500. Details of fresh subscribers, their addresses, income-tax particulars, mode of payments etc. were also asked from the assessee in relation to fresh share capital received by the assessee during the year, vide letter dated 12.11.2003 of the Assessing Officer to the assessee. In response, the assessee had furnished the details vide letter dated 07.01.2004. Further query was also raised by the Assessing Officer time to time which was responded to and thereafter only the assessment was framed under sec. 143(3) of the Act. In the reasons recorded for the reopening in question, nowhere it has been alleged that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year and the reopening has been initiated merely on the basis of information received from the Investigation Wing of the Department that as per the statements of Shri Vinod Garg, the assessee was one of the beneficiaries of bogus/accommodation entries, that too without affording opportunity to the assessee to cross examine the said person or confronting with the said statements, if any. We thus find that the validity of initiation of reopening proceedings in the present case was not valid on both the above counts. Firstly, there was no allegation against the assessee in the reasons recorded that there was failure on their part to disclose fully and truly all material facts necessary for its assessment and secondly the reasons recorded were vague. The assessee thus succeeds on both the counts and the respective ground numbers 2 and 3 in this regard are allowed in favour of the assessee with this finding that the initiation of reopening proceedings in the present case was not valid and thus the assessment in question framed in furtherance thereto is also not valid. The assessment impugned is thus held as void ab initio and is accordingly quashed. In view of this finding, the issues raised in the remaining grounds have become infructuous and these grounds are accordingly disposed off.“ 5.1 Keeping in view of the facts and circumstances of the case, we find that in Quantum Appeal in the relevant assessment order passed u/s. 147/143(3) of the I.T. Act, 1961 has been quashed by the ITAT, ‘G’ Bench, New Delhi vide order dated 30.5.2016, hence, the penalty in dispute will not survive. Accordingly, we set aside the orders of the authorities below and delete the penalty in dispute and allow the Appeal filed by the Assessee.

In the result, the appeal filed by the Assessee stands allowed.