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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 02/01/2014 of learned Commissioner of Income-tax (Appeals)-XXVIII, New Delhi for assessment year 2004-05 raising following grounds: i. On facts and in circumstances of the case, CIT (A) has erred both on facts and in law, in upholding illegal action of re-assessment and assumption of jurisdiction by the Respondent without issue/service of notice u/s 148 and without recording the reasons for reopening the assessment. Therefore, impugned assessment order is liable to be quashed as unsustainable, both on facts and in law. ii. That having regard to facts and circumstances of the case, CIT(A) has erred both on facts and in law in upholding action of Respondent of framing impugned assessment order without complying with mandatory statutory requirements of section 147 to 153 of the Income Tax Act, 1961 and in not holding reopening of case as bad in law and beyond jurisdiction of A.O. iii. That having regard to facts and circumstances of the case, Respondent has erred in framing impugned assessment order, without removing the objection raised by the appellant regarding illegal assumption of jurisdiction by Ld. A.O. by not passing speaking order following the law laid down by Hon'ble Supreme Court in case of GKN Drive Shaft, ought to have been set aside by CIT( A) and failure to do so has vitiated the impugned order. iv. That having regard to facts and circumstances of the case, Respondent has erred in framing impugned assessment order without issuing mandatory statutory notice u/s 143(2) as per law. The impugned order ought to have been set aside by CIT (A) and failure to do so has vitiated the impugned order. v. The impugned order had been passed by obtaining behind the back of appellant solely on the basis of some alleged statements/information for which no opportunity was provided to rebut the same and there was not even a show cause notice specifically proposing to make any addition was issued nor any effective opportunity of hearing was provided and hence, the impugned order passed in violation of natural justice ought to have been quashed and failure to do so has vitiated the order of Ld. CIT(A). vi. That under facts and circumstances of case and in law, Respondent has not discharged its onus of proof in any manner and has chosen to make illegal addition perversely and all the additions therefore ought to have been set aside by CIT(A) and failure to do so has vitiated the impugned order.
vii. The authorities below have erred in not following the binding decisions of Courts and Tribunals relied upon by the appellant and impugned orders cannot, therefore, be sustained both on facts and in law. viii. Ld. CIT (A) erred in upholding the illegal additions of Rs. 5, 00, 000/- by treating it as unexplained income u/s 68 by the Respondent as justified ignoring the records and documents explaining the transaction already filed before the Respondent and again before Ld. CIT(A), which were not accepted by the respondent without assigning any reason thereto. Hence the order of AO may be vacated and demand may be deleted. ix. On the facts and in the circumstances of the case Ld. CIT (A) grossly erred in upholding additions of Rs.18,000/- as alleged commission earned by the assessee, assumed by the respondent without any basis, is totally unsustainable in law and on facts and therefore liable to be deleted. x. Ld. CIT (A) has also erred in upholding the illegal additions and disallowances and consequent demands of Income Tax, Interest and penalties illegally raised by the Respondent and hence the impugned order sustaining the additions and demand would require to be set aside and quashed to that extent. xi. The appellant craves leave to raise further/additional grounds and documents and file paper book before the hearing of the appeal and prays for the appeal to be allowed after hearing both side.
The facts in brief of the case are that on receipt of information from the Investigation Wing that the assessee was a beneficiary of accommodation entries, a notice under section 148 of the Income-tax Act, 1961 (in short “the Act”) was issued on 02/03/2009, requesting the assessee to file the return of income within one month from the receiving of notice. It is claimed by the Assessing Officer that the notice was issued through post and was duly served upon the assessee. In response, the assessee through letter dated 04/04/2009 submitted that the return filed under section 139(1) of the Act vide acknowledgement number 3341007286 dated 30/03/2005, might be treated as return filed in compliance to notice under section 148 of the Act. The Assessing Officer further noted in the assessment order that notice under section 143(2) of the Act was issued and duly served upon the assessee requesting to file the details and attend the proceedings on 14/09/2009. In response, the Authorized Representative of the assessee attended on 17/09/2009 and filed letter requesting to provide reasons recorded and the basis for reopening the assessment. Further, the Authorized Representative of the assessee vide letter dated 24/11/2009 objected to the issue of notice under section 148 of the Act on the ground that same was issued mechanically by the Assessing Officer without any jurisdiction and was barred by limitation. The Assessing Officer disposed of the objections of the assessee on same day vide his letter dated 24/11/2009. In the information received from the Director of Investigation, it is found that the assessee received amount of Rs.5 lacs from M/s. P.K. Investment and Rs.1 lakh from M/s. Arpit Sales Corporation, which were in the nature of accommodation entries. The Assessing Officer asked the assessee to furnish copy of bank account of the assessee with narration and copy of bank accounts of M/s. P.K. Investments M/s. Arpit Sales Corporation. The assessee was also asked to produce its books of accounts. The Assessing Officer observed that the assessee failed to produce necessary evidence despite repeated opportunities and, therefore, he held the entire amount of Rs.6 lacs received alongwith the commission of Rs. 18,000/- for obtaining such entries, as unexplained cash credit under section 68 of the Act. 2.1 Before the learned Commissioner of Income-tax (Appeals), the assessee challenged the validity of the reassessment proceedings on the ground that the Assessing Officer was not having jurisdiction in issuing notice under section 148 of the Act as well as other grounds of non-application of mind by the Assessing Officer and not passing the speaking order while rejecting the objection of the assessee against the reopening of the assessment. The assessee also submitted additional evidences which were forwarded by the learned Commissioner of Income-tax (Appeals) to the Assessing Officer, calling for a remand report. The learned Commissioner of Income-tax (Appeals) upheld the validity of the reassessment proceedings with the following observations: “5.4 I have carefully considered the assessment order, submissions, remand report and rejoinder thereof. The proceedings under section 147 against the appellant, as per the assessment order were initiated on the basis of information received from the Investigation Wing that the assessee was beneficiary of Accommodation Entries from certain Entry Operator identified by the Wing. The appellant during the appellate proceedings has objected to the issue of notice u/s 148 on the following basis.
a) No independent application of mind by the Assessing Officer : The Authorized Representative has submitted that the Assessing Officer simply relied upon the information received from the Investigation Wing and did not independently appreciate the facts and therefore, notice under section 148 should be quashed on the basis that the notice is without jurisdiction. b) The Assessing Officer has reopened the assessment on guess work as the return for A.Y. 2004-05 was not available and traceable at the time of issue of notice. c) The statutory requirement of section 151(2) regarding satisfaction Ld. Joint Commissioner of Income Tax is absent on the file. d) No speaking order passed overruling the objections filed by the assessee. e) The Principles of natural justice have been grossly violated as information collected behind the back has been used. f) The assessment is made on mere surmises and conjectures. 5.3 The appellant’s plea that the assessment is without jurisdiction as notice u/s 148 has been issued without proper appreciation of facts is not valid. I find that the reopening u/s 147/148 has been done by the AO after recording of reasons as per law showing “reason to believe”, based on information received from the Investigation Wing. The copy of the reasons for reopening of the assessment have been provided to the appellant. The objections raised by the assessee have also been addressed by the Assessing Officer through letter dated 24.11.2009. The satisfaction of the Joint Commissioner of Income Tax, was not necessary as the case had not been subject to scrutiny by way of assessment under section 143(3) nor had four years elapsed from the end of the relevant assessment year. In response to notice issued on 02.03.2009 the assessee furnished a letter on 04.04.2009 to treat the return filed earlier as filed in response to notice under section 148. In this connection reference is also placed on the following judicial pronouncements. In CIT v. India Terminal Connector Systems Ltd. dated 21.03.2012, the Hon’ble Delhi High Court has held that assessment can be reopened on the basis of information provided by the DIT(Investigation) which was not available with the AO during the course of original proceeding. The Hon’ble High Court thus held as under: “In the present case it cannot be disputed at all that the material present before the Assessing Officer at the time of recording reasons for reopening the assessment did show a link between M/s. Shiv am Softech Ltd., described as an entry provider, with the petitioner herein. Not only was there a link between the two names, but the material also disclosed the date on which the entry was taken, the cheque or DD number, the name of the bank and branch and the account number. With such precise material before the Assessing Officer, the existence of which is beyond challenge, it can hardly be said that the Assessing Officer could not have had even a prima facie belief that income chargeable to tax had escaped assessment in the hands of the assessee for the assessment year 2004-05." [2007] 291 ITR 0500- Assistant Commissioner of Income-tax v. Rajesh Jhaveri Stock Brokers P. Ltd. (Supreme Court of India) The expression "reason to believe" in section 147 would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. What is required is "reason to believe” but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because the formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer.
ITO v. Selected Dalurband Coal Co. P. Ltd. [1996] 217 ITR 597 (SC) and Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) followed. Considering the above, the reopening proceeding cannot be said to be invalid. These grounds of appeal are, therefore, rejected.” 2.2 On merit, the learned Commissioner of Income-tax (Appeals) found that the entry of Rs. 1 lakh in respect M/s. Arpit Sales Corporation was from another account of the assessee itself and, therefore, deleted the addition of Rs. 1 lakh, however, in respect of addition of Rs. 5 lakhs from M/s. P.K. Investment, the learned Commissioner of Income-tax (Appeals) observed that the assessee claimed the credit from the party as out of sales of shares, whereas the creditor M/s. P.K. Investment in his confirmation stated that the said amount was refund of advance. The learned Commissioner of Income Tax(Appeals) relying on the judgment of Hon’ble Delhi High Court in the case of Indus Valley Promoters Ltd. Vs. Commissioner of Income Tax (2008) 305 ITR 202, judgment of the Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs. P. Mohanakala 291 ITR 278 and judgment of Hon’ble Delhi High Court in the case of Commissioner of Income Tax Vs. M/s. Nova Promoters and Finlease Private Limited (2012) 342 ITR 169 held that the assessee failed to discharge the burden of proof to explain the creditworthiness of the creditor and, therefore, he confirmed the addition of Rs. 5 lakhs and addition of Rs. 18,000/- towards commission charges.
Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
Before us, the learned Authorized Representative of the assessee filed a paper book containing pages from 1 to 59 and referring to page 1 of the paper book submitted that notice under section 148 of the Act was issued by the Assessing Officer not having jurisdiction over the assessee. He further submitted referring to page 10 of the assessee’s paper book that the objections raised by the assessee against reopening of the assessment has not been disposed of by the Assessing Officer through a speaking order, which is non-compliance of the direction of the Hon’ble Supreme Court in the case of GKN Driveshaft India Private Limited Vs. Income Tax Officer, (2003) 259 ITR 19 (SC) and accordingly submitted that on this ground alone the impugned order might be vacated. He also submitted that while recording the reasons, the Assessing Officer has not applied his mind independently and, therefore, the reassessment proceedings were not valid.
On the other hand, learned Sr. Department Representative relying on the order of the lower authorities submitted that the addition confirmed by the learned Commissioner of Income-tax (Appeals) might be sustained.
We have heard the rival submissions and perused the material on record. As regard the ground No. 3 of the appeal, challenging the impugned assessment order without removing the objection raised by the assessee regarding illegal assumption of jurisdiction by the Assessing Officer and not Hon’ble Supreme Court in the case of GKN Driveshaft (supra), we find from pages 8 to 9 of the assesses’s paper book that following objections were raised by the assessee against reopening of the assessment: “This is in reference of above said notice served on 20.11.2009 along with a copy of alleged reasons recorded for reopening the assessment on the basis of which the case was reopened u/s 147/148 for the assessment year 2004-05. Kindly refer to your notice u/s 148 dated 02.03.2009 which was issued mechanically, wholly without jurisdiction and is barred by limitation and hence cannot be the basis for you to proceed with any action of assessment/re-assessment. The allegation made by you is false. You are requested to supply the so called information of DlT, Unit-V relied upon by your predecessor along with the annexure(s) & supporting documents. From the so called reasons recorded it is understood that the so called DIT information/report alone is treated as final order to reopen the assessment instead of forming own belief of Assessing Officer and it is seen that the alleged reason for reopening stated to have been recorded, does not contain full details nor would constitute any reason at all. There is no detail as what the information was and how that was related to the assessee, what is the cause and effect relationship with the assessee. How a banking transaction in the normal course of business can be considered as bogus accommodation entry. What amount is the concealment of income? Please provide the copy of the information/report along with all the records and documents on which it might be based and after receiving the same we also want cross examination of the officers concerned who claimed to have made investigation and the parties allegedly involved and we shall do the needful on receipt of the same. Information asked for vide Questionnaire will be filed shortly.”
The objections of the assessee have been disposed of by the Assessing Officer on same date. A copy of the order disposing objection is placed on page 10 of the assesses’s paper book. The relevant part of the order of the Assessing Officer disposing the objection is reproduced as under: “Please refer to your letter dated 24/11/2009 on the above subject. In the said letter you have challenged the jurisdiction and limitation in this case. It is to inform you that jurisdiction of the case lies with the undersigned and moreover matter is not time barred as claimed by you. The notice u/s 148 is valid and well in time. The reason recorded for reopening of assessment has already been supply to you. The information received from DIT (Inv.) form the belief and perusals for which notice u/s 148 has been issued.”
On perusal of the above order, we find that the Assessing Officer was required to pass speaking and reasoned order while rejecting the objections of the assessee. In our opinion, the speaking order means an order which mention the fact, reason, finding of the case and also the evidence on the basis of which such order is passed. The Assessing Officer was required to apply his mind to the issue involved and setting out the reasons for arriving at the decision. We find that the Assessing Officer simply stated that the jurisdiction lies with him and no reason as to how the jurisdiction lies with him was given in the order.
The Assessing Officer has also not dealt with the objection of the assessee regarding reasons recorded. The assessee in its objections asked for the information relied upon by the Assessing Officer and how the same was related to the assessee. The assessee also asked how banking transaction in normal course of business was considered as bogus accommodation entry in the case of the assessee. The assessee also called for the copy of documents/information/reports alongwith all records relied upon by the Assessing Officer for the purpose of cross examination of the person concerned. The order of the Assessing Officer is silent on these issues.
In the case of GKN Driveshaft (supra) the Hon’ble Supreme Court has laid down following directions regarding dealing with the objection of the assessee for reopening of the assessment:
5. We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under s. 148 of the IT Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The AO is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the AO has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years.
Further, we find that in the case of Ferrous Infrastructure Pvt. Ltd. & Anr. Vs. Deputy Commissioner of Income Tax, 120 DTR 821, the Hon’ble High Court of Delhi has held as under:
“8. We may also point out that the second issue raised by the learned counsel for the petitioners also deserves some consideration. In GKN Driveshafts (supra), the Supreme Court had directed as under:-
However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years.
(underlining added) 8. On going through the same, it is evident that the Assessing Officer has to pass a speaking order disposing of the objections “before proceeding with the assessment”. In the present case, a separate speaking order has not been passed and the objections have been dealt with, if at all, in the re-assessment order itself. On this ground also, the petitioner is liable to succeed.
When we advert to the facts of the instant case, we find that the Assessing Officer while disposing the objection vide his order dated 24/11/ 2009, has not dealt with the objections of the assessee. In our view, non-disposing of the objections of Assessing Officer through a speaking order has contravened the direction of the Hon’ble Supreme Court in the case of GKN Driveshaft (supra) and thus respectfully following the finding of the Hon’ble Delhi High Court in the case of Ferrous Infrastructure Pvt. Ltd. & Anr. (supra), the reassessment proceedings are held as invalid.
Since we have already held the reassessment proceedings invalid, the other grounds raised
by the assessee challenging the legality of the reassessment proceedings as well as merit of the addition are rendered academic only and we are not required to adjudicate on those issues.
12. In the result, the appeal of the assessee is allowed. The decision is pronounced in the open court on 28th Sept., 2016.