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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU
Per L.P. Sahu, Accountant Member:
This is an appeal by the assessee against the order of ld. CIT(A)-IX, New Delhi dated 28.01.2013 for the assessment year 2004-05 on the following grounds :
“1. That on facts and in law, the Ld. CIT(A)failed to appreciate that reopening of assessment u/s 147 is not legally valid and therefore the Order of Assessment is not sustainable under law.
2. That on facts and in law, the Ld. CIT(A) failed to appreciate that no addition on account of alleged credit entries could be made u/s 68 of the Act, particularly for the reasons that the appellant had submitted necessary supporting evidence for the receipt of Share Application Money.
That on facts and in law, the Ld.CIT(A) failed to appreciate that reopening of the case of appellant had been made on the ground that the appellant had received credit entries from the four Companies under reference and therefore the AO cannot make the addition u/s 68 of the Act taking a contrary stand that these companies are not in existence and their identity had not been proved.
4. That on facts and in law, the Ld.CIT(A)failed to appreciate that the appellant was incorporated on 18th June, 2003 and entries of share capital under reference have been taken on 26th June, 2003 and 1st July, 2003, that is in just few days after the incorporation. The Ld. CIT(A) also failed to appreciate that the appellant had not even commenced the business by them and therefore there could be no allegation that the credit entries under reference represent undisclosed income of the appellant in terms of section 68 of the Act.
4.1 That on facts and in law, the Ld. CIT(A) also failed to discuss and appreciate the contention of the appellant in this regard as also the decision of Hon'ble Supreme Court of India in the case of CIT vs. Bharat Engineering & Construction Co. - (1972) 83 ITR 187 (SC) and CIT vs. Smt. P.K. Noorjahan - (1999) 237 ITR 570 (SC) relied upon by the appellant.
5 That on facts and in law, the Ld.CIT(A) erred in upholding the addition made by the AO without fully appreciating the facts and contention of the appellant and therefore the Order of the Ld.CIT(A) is bad in law.
The brief facts of the case are that the assessee filed its return of income for the year under consideration on 31.10.2004 declaring negative income of (-) Rs.49,331/-. The same was processed u/s 143(1) of the Act. Subsequently, the case was reopened u/s 147 of the Act. Statutory notice u/s 143(2) was issued and duly served upon the assessee. The assessment was completed u/s 143(3)/147 vide order dated 21.9.2011 by the AO at an income of Rs.19,90,670/- after making the addition of Rs.20,00,000/- u/s. 68 and Rs.40,000/- u/s. 69C of the IT Act. The reopening of the case was made on the basis of information received from the Investigation Wing of the Department that during the previous year the assessee company was in receipt of accommodation entries of Rs.20,00,000/- Notice u/s 148 of the I.T. Act was issued after recording reasons on 24.03.2011. The assessee replied that the original return u/s 139 be treated to be filed in response to the notice u/s. 148 of the Act. The balance sheet of the assessee reflected that it had received share application money of Rs.21,00,000/-. The following funds in the current account no. GEN 1776 of Bank of Maharashtra, Greater Kailash was asked to be explained:
Date Amount (Rs.) Name of the Party
26.06.2003 500,000 Tashi Contractors Pvt. Ltd. 01.07.2003 500,000 Fair N Square Exports Pvt. Ltd.
26.06.2003 500,000 Baldev Harish Electricals Pvt. Ltd. 01.07.2003 500,000 Rajkar Electricals Electronics Pvt. Ltd.
The assessee stated that the amount was credited in its Bank account and was related to share capital issued. Letters seeking information u/s 133(6) of the Act were issued to the aforementioned parties. Postal authorities returned these letters with the remarks such as no such firm at the given address or left from the given address or insufficient address. The AO, therefore, observed that the assessee failed to prove the ingredients of section 68 of the Act, i.e., identity and creditworthiness of the creditors and genuineness of the transactions. The AO also observed that during the year under consideration, the assessee company has not declared any receipts in its profit and loss account as there was no business. Only expenses relating to the bank charges, audit fees and preliminary maintenance expenses were claimed. He accordingly, made addition of Rs.20 lacs as unexplained cash credits u/s. 68 and of Rs.40000/- u/s. 69C as commission paid for obtaining accommodation entries.
3. The assessee carried the matter in appeal before the ld. CIT(A)where he challenged the validity of reopening u/s. 147/148 as well as on merits and filed the latest address of the four creditors and submitted evidences in support of its claim. The ld. CIT(A) remanded the same for comments of the AO who vide remand report submitted that summons u/s. 131 of the Act were sent to all the four companies on the addresses given, but no response received. Income-tax Inspector was also deputed to enquire the existence of the above companies, out of which three companies were found non-existent at the addresses provide and one of the companies, i.e., M/s. Tashi Contractors Pvt. Ltd. denied to have made any transaction with the assessee stating that someone is misusing its name. After considering the submissions of the assessee, remand report of the AO and other attending facts and circumstances of the case, confirmed the order of the AO relying on the decision of Hon’ble Delhi High Court in the case of Nova Promoters and Finlease (P) Ltd. 342 ITR 169. Aggrieved, the assessee is in appeal before the Tribunal.
During the course of hearing, the ld. Counsel for the appellant submitted that the reopening of assessment is not legally valid as the reasons recorded by the AO are vague having not been based on any tangible material in possession of the AO. The very foundation of the belief of escapement is the information received from the investigation wing and the AO has not applied his mind to any independent material in his possession before forming the belief of escapement of income and that the money credited was from the coffers of the assessee. It was submitted that complete evidences in regard to share capital received and for existence of companies were submitted before the authorities below. It was submitted that no addition could be made u/s. 68 simply because company had not commenced the business. No material which led the AO to form a belief of escapement was confronted to the assessee before initiating the proceedings u/s. 147 of the Act. Reliance is placed on plenty of decisions as under :
(i). Sheo Nath Singh v. AAC 82 ITR 147 (SC) (ii). Sarthak Securities Co. Pvt. Ltd. v. ITO (2010) 329 ITR 110 (Del) (iii) CIT v. G & G Pharma India Ltd. (2016)384 ITR 147(Del). (iv). Advance India Project Ltd. v. ACtT, decided on 14.08.2015 – ITAT (v). Jiten Gurnani v. ITO, ITA No.4908/Del/2012 decided on 31.03.2015 – ITAT. (vi). Chanderiya Real Estate (P) Ltd. v. ACIT, ITA No. 657/Del/2015- ITAT. (vii). The Central India Electric Supply Co. Ltd. v. ITO, (2011) 333 ITR 237 (Delhi) (viii). Govinda Choudhury & Sons v. ITO (1977) 109 ITR 370 (Ori.) (ix). S.P. Agarwalla alias Sukhdeo Prasad Agarwalla v. ITO (1983) 140 ITR 1010 (Cal.). (x). CIT v. Rakam Money Matters Pvt. Ltd. in ITA No.778/2015 (Del.) dated 13.10.2015. (xi). CIT v. Expo Globe India Ltd. (2014) 361 ITR 147 (Del (xii). ITO v. Moksha Securities P. Ltd. in ITA No.6251/Dei/2015 dated 2.09.2016 of ITAT, Delhi. (xiii). ITO v. Reliance Marketing Pvt. Ltd. in I.T.A. No. 1310/Del/2011 dated 18.02.2015 by ITAT, Delhi Bench 'F' (xiv). Modinagar Rolls Ltd v. Addl. CIT in ITA No. 333/Del/2015 dated 07.08.2015 of ITAT, Delhi. (xv). CIT v. Lovely Exports (P) Ltd. (2008) 216 CTR 195 (SC). (xvi) CIT v Bharat Engineering & Construction Co. 83 ITR 187 (SC). (xvii).DCIT v. Esteem Towers P Ltd. 99 TTJ472 (DEL.
The ld. DR, on the other hand relied on the orders of the authorities below and submitted that the ld. CIT(A) has passed a reasoned order, which requires no interference.
We have considered the rival submissions and have perused the entire material available on record. A perusal of the reasons recorded shows that the very foundation of AO’s belief is the information received from Investigation wing of the department. The AO has not applied his mind to any tangible material in his possession before issuing notice u/s. 148, in absence of which the reopening of assessment cannot be accepted in the eyes of law, as laid down by Hon’ble Jurisdictional High Court as well as Tribunal in plenty of cases. Therefore, forming of belief of escapement and consequently reopening of assessment on the basis of mere information received by AO from Investigation wing is not tenable. We are fortified for this view by the decision of Hon’ble Delhi High Court in the case of CIT vs. G & G Pharma India Ltd. (supra)relied by assessee, wherein the Hon’ble jurisdictional High Court in the similar facts has adjudicated the issue as under :
“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 February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate 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 under Section 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 decisions discussed hereinbefore, 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.
Mr. Sawhney took the Court through the order of the CIT(A) to show how the CIT (A) discussed the materials produced during the hearing of the appeal. The Court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT may have proceeded on the basis that the reopening of the assessment was valid, this does not satisfy the requirement of law that prior to the reopening of the assessment, the AO has to, applying his mind to the materials, conclude that he has reason to believe that income of the Assessee has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity. .
In the circumstances, the conclusion reached by the ITAT cannot be said to be erroneous. No substantial question of law arises.”
Respectfully following the above decision of Hon’ble jurisdictional High Court as also several other decisions of coordinate Benches, we find that the reopening of assessment in the present case is not legally valid and the same is liable to be quashed. Since the reopening of assessment is found invalid ab initio, we need not to enter into the merits of additions in the instant case.
Accordingly, the appeal of the assessee deserves to be allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 13.12.2016.