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Income Tax Appellate Tribunal, DELHI BENCHES : SMC-3 : NEW DELHI
Before: SHRI J. SUDHAKAR REDDY
ORDER This appeal filed by the assessee is directed against the order of the CIT(A) dated 28.11.2014 for the assessment year 2005-06 on the following grounds:-
“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the reassessment u/s 147 and that too without recoding valid reasons and without obtaining valid approval as per law and without complying with mandatory condition of section 147 to 151 as envisaged under the law.
2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.20,00,000/- on account of share application money received u/s 68 of Income Tax Act, 1961 and that too without considering the submissions/evidences of the assessee.
3. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.20,00,000/- on account of share application money received, against which 2,00,000 shares were allotted, u/s 68 is beyond jurisdiction, illegal, bad in law and against the facts and circumstances of the case and in any case impugned addition is beyond the scope and jurisdiction of the impugned assessment order.
4. That impugned assessment order and addition made therein are not sustainable on various legal and factual grounds and impugned assessment order has been passed on incorrect facts and findings and without confronting adverse material and without providing opportunity of cross examination and the same has been passed in violation of principles of natural justice.
5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234B of the Income Tax Act, 1961.
That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other. “
After hearing the rival contentions, I find that the AO tried to assume jurisdiction by issuing notice u/s 148 for reopening the assessment. He has recorded the reasons for reopening the assessment as follows:-
“A search operation u/s 132 of the Income-tax Act, 1961 was conducted at the office premises of Shri Tarun Goyal, Charted Accountant at 13/34, WEA, Arya Samaj Road, Karol 8agh, New Delhi by the Investigation Wing of Delhi on 15.09.2008. During the course of search operation, it was established that Shri Tarun Goyal has floated about. 90 companies for the purpose of providing accommodation entries. The Directors of these companies are none but former and present employees of Shri Tarun Goyal. Shri Tarun Goyal has been using them for merely signing all the documents, bank cheques and also for transporting and exchanging cash and cheques in order to provide accommodation entries. During the search operation, as per his statement Shri Tarun Goyal has accepted that he provides accommodation entries and his varies companies use for this purpose. It has also been reported the statements of the auditors of various companies of Shri Tarun Goyal were recorded on oath after summons were issued to them, The auditors of various companies run by Shri Tarun Goyal have confirmed that they had no knowledge about the directors of the companies and all the audits were done at the instructions of Shri Tarun Goyal
A detailed report inclosing therewith the list of beneficiaries of accommodation entries sent from the Addl. Directors of Income Tax (lnv.) , Unit-IV, ARA Centre, E-2, Jhandewalen Extn., New Delhi. Vide letter bearing F.No, AddI.DIT(lnv)/unit-IV/Beneficiary/2008- 09/393 dated 31.03,2009, has been received through Addl. CIT Range-14, New Delhi's letter dated 28.04,2009 As per the information received from the Investigation wing, the assessee company has introduced its own undisclosed income in the qrab of share application money/bogus transaction/gifts through M/s. Geefcee Finance Ltd. As per information, the assessee company i.e. M/s, Quality E-Nabled Remote Sol. Pvt. Ltd. is a beneficiary. In view of the above, I have reason to believe that income at least to the tune of 20.00 lakh for above assessment year had escaped assessment. Further, l am also satisfied that on account of failure on the part of the assessee to disclose truly and fully all the material facts necessary for the above assessment year, the income to the tune of Rs. 20.00 Lakh has escaped assessment within the meaning the section 147 of the Income Tax Act, 1961. Since, four years has expired from the end of the relevant assessment year and no scrutiny assesssment was completed u/s 143(3) in this case for the said assessment year, the reasons recorded above for the purpose of reopening of assessment is put up kind satisfaction of Addl. Commissioner of Income-tax Central range-6, New Delhi in terms of the proviso of Section 151(2) of the I.T. Act, 1961.”
In this case, I have to necessarily conclude that the reasons were recorded without application of mind. Therefore, on this ground itself, the reopening of assessment has to be held bad in law by following the judgements of the jurisdictional High Court in the case Signature Hotels Pvt. Ltd. vs. ITO 328 ITR 51 (Del) wherein it was held that notice issued based on a report from Investigation Wing is invalid where the AO does not examine the evidence. The Hon’ble jurisdictional High Court in the case Principal Commissioner of Income Tax vs. G & G Pharma India Ltd. in vide order dt. 8.10.2015 at para 12 and 13 held as follows.
“12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10 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 C.O. No. 276/Del/2010 A.Y. 2000-2001 M/s Bawa Float Glass Limited 3 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 5 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 .”
Respectfully following the judgements of the Hon’ble jurisdictional High Court in the cases cited above, the assessment being bad in law I quash the same.
In the result, the appeal of the assessee is allowed.
The order pronounced in the open court on 08.09.2016.