SONARIKA HOTELS PVT. LTD.,DELHI vs. ITO, NEW DELHI

The Assessee has filed the Appeal against the Order dated 26.8.2013 of the Ld. CIT(A)-XII, New Delhi pertaining to assessment year 2008-09 and raised the following grounds:- 1. That on the facts and in the circumstances of the case and in law, Ld. AO erred in reopening the case u/s. 148 of the Act, as apparent from cursory look to reasons recorded (dated 30.6.2011) without describing the basic aspects of alleged transaction (viz. date, mode, bank through which transacted, instrument, its nature, return filing details, etc.) in absentia of which, whole reopening action gets vitiated. 2. That on the facts and in the circumstances of the case and in law, Ld.

CIT(A) erred in upholding the addition made by AO u/s. 69A of the Act, amounting to Rs. 50,00,000/- being genuine loan taken from M/s Tejasvi

Investment Pvt. Ltd. returned in same previous year, without appreciating that same was genuinely taken for auction bid (for hotel land, onward utilized for Draft to DDA) duly returned when said purpose was not fulfilled. 3. That on the facts and in the circumstances of the case and in law, Ld.

CIT(A) erred in upholding the addition made by the AO u/s. 69A of the Act, amounting to Rs. 50,00,000/- being loan taken from M/s Tejasvi

Investment Pvt. Ltd. returned in same previous year, on mere basis of investigation wing recommendation without any independent enquiry and application of mind. 4. That on the facts and in the circumstances of the case and in law, Ld.

CIT(A) erred in upholding the addition made by AO u/s. 69A of the Act, amounting to Rs. 50,00,000/- being loan taken from M/s Tejasvi

Investment Pvt. Ltd. returned in same previous year, in violation of principles of natural justice, without finding what happened in case of lender company.

That the Appellant craves the leave to add, modify, rescind, supplement or alter any of the grounds stated herein above, either before or at the time of hearing of this appeal.”

2. Assessee has also filed an Application for admission of additional grounds of Appeal

vide its Application dated 27.6.2016 in which the assessee has stated that in view of the settled decisions in the case of NTPC 229 ITR 383 (SC), Jute Corporation 187 ITR 688 and Hon’ble Gujarat High Court decision in the case of PV Doshi’s case 113 ITR

22. (legal ground can be raised for first time in collateral and second round also). The legal ground can be very well raised for first before the ITAT which goes to the root of the matter and pertains to the assumption of jurisdiction. For the sake of convenience, the legal additional grounds raised by the asseseee are reproduced as under:-

“That on the facts and in the circumstances of the case and in law, the notice issued u/s. 148 in this case is bad in law, without jurisdiction, and also the assessment order passed on the foundation of such notice and order passed by Ld. CIT(A), are liable to be quashed.”

“That on the facts and in the circumstances of the case and in law, the reasons recorded in present case for assumption of jurisdiction do not satisfy the requirements of law and are not sufficient to form a belief that income has escaped assessment within the meaning of provisions of section 147/148 of the Act and as a sequel present reopening action of AO, order passed by the AO thereon, and impugned order of the Ld.

CIT(A) are liable to be quashed.”

Assessee has also filed these additional grounds by filing the separate Application dated 27.6.2016 which are not permissible as per Rule 11 of the ITAT. She further stated that keeping in view of the NTPC ruling the additional ground may not be admitted, because these are not the legal grounds and these are factual grounds.

The assessee i.e. M/s Sonarika Hotel (P) Ltd. had received the following accommodation entry of RS.5O,OO,OOO/- from the following concern of Sh.

Tarun Goyal in the form of cheques, detailed as under:

S.No. Name of Account holder of entry giving Value of entry taken account 1 M/s Tajasvi Investments (P) Ltd. 50,00,000/- Total 50,00,000/- 6.1 In this case the assessee had filed the return of income on 30.09.2008 declaring loss at Rs.36,603/-. On the basis of information received from Investigation Wing of the Department, therefore, notices u/s 147 and u/s 148 of the Income Tax Act, 1961 was issued on 30.06.2011 after obtaining approval of the Addl. Commissioner of Income Tax, Range-9, New Delhi. The same was sent through speed post. The assessee did not file any return in response to the said notice, nor did it file any reply in this regard. Notices u/s 142(1) dated 02.02.2012 alongwith questionnaire issued to the assessee for 14.3.2012.

However. assessee has not respond. Thereafter various notices u/s 142(1) dated 23.05.2012, 15.10.2012, 06.11.2012 and 27.12.2012 were issued to the assessee company by speed post at their following addresses-:

Assessee has also requested for copy of reason recorded for issuance of notice under section 148.The copy of reason recorded for issuance of notice u/s 148 was provided to him on 28.01.2013 and ask to file complete ITR with Annexure.

The case adjourned to 30.1.2013. The assessee did not file any return in response to the notice, nor did it file any letter in this regard. Further. none appeared on behalf of the assessee. Show cause as to why the accommodation entry raised by the assessee company may not be added to the income, along-with the notices u/s 143(2)/142(1) of the I.T. Act, were issued on the assessee on 07.03.2013, requiring the assessee to furnish ITR with details /evidences for the A.Y.2008-09 and also to produce its books of accounts. However. once again he failed to respond. AO has observed that since there has been no compliance till date, he has left with no option but to complete the assessment to the best of his judgement under section 144 read with section 147 of the IT Act 1961. AO observed that the assessee has received RS.50,00,000/- in the form of accommodation entry from Shri Tarun Goyal and his associates, during the relevant previous year for which it has failed to offer any explanation despite several opportunities provided to it. Shri Tarun Goyal has admitted that he only used to provide accommodation entries in form of cheques in lieu of unaccounted cash or for provide entries for bogus expenditure. The assessee had failed to file Income Tax Return and to produce necessary evidence despite repeated opportunities. Therefore. it is concluded that the assessee has paid RS.50,00,000/- plus commission of RS.25,000/- to Sh. Tarun Goyal for which it has failed to explain about any source. Therefore, AO added RS.50,25,000/- to the income of the assessee u/s 69A of the Income Tax Act, 1961 being unaccounted money in the hands of the assessee company for which it has failed to offer any explanation and completed the assessment at Rs. 49,88,400/- u/s. 144/147 of the Act vide his order dated 21.3.2013.

CIT Vs. Kamdhenu Steels & Alloys Ltd. & Ors., (2012) 248 CTR (Del) i)

33., (DHC) ii) CITvs. SFIL Stock Broking Ltd.,(2010) 325ITR 285.,(DHC). iii) Sarthak Securities Co. Pvt. Ltd. Vs. ITo.,(2010) 329ITR 110.,(DHC). iv) Signature Hotels Pvt. Ltd. Vs. ITO & Anr., (2011) 338ItR 51., (DHC). v) Recent decision of Hon 'ble Jurisdictional High Court of Delhi in the case ofCITvs Insecticides (India) Ltd. 2013 357 ITR 330 (Del). Decision of ITAT Delhi Bench in the case of ITO vs On Exim Pvt. Ltd. (2013) 157 TTJ 633 (ITAT Delhi). vii) Recent Delhi bench ITAT order in case of ACIT Vs Shri Devesh Kumar (ITA 20681De112010) dated 31.10.2014 (enclosed) viii) Recent Delhi bench ITAT order in case of ITO Vs M.B.Jewellers (P)

Ltd ITA 24991Del12011 dated 14.11.2014 ix) Recent Delhi bench IT AT order in case of RKG International (P)

Ltd vs ITO (ITA 1011De112013) order dated 14.11.2014

In view of the above, he requested that by following the aforesaid precedents the reassessment proceedings of the AO may be quashed by accepting the Appeal filed by the Assessee.

10. On the contrary, Ld. DR relied upon the order passed by the authorities below and stated that the AO has properly recorded the reasons for reopening by due application of mind, hence, the appeal of the Assessee may be dismissed.

“Reasons for initiation of proceedings u/s. 147 of the I.Tax Act, 1961 30/06/2011: M/s Sonarika Hotel Pvt. Ltd., PAN : AAKCS1233L, D-8, Appollo House, Main Road, Maya Puri, Indl. Area, New Delhi – 110 064 and C/o Sh. Arun Mahajan, Director, C- I/2010, Janakpuri, New Delhi – 110 058 Ay 2008-09

The Addl. Director of Income Tax (Investigation) Unit-IV, New Delhi had, vide office letter F.No. Addl. DIT(Inv.)/Unit-IV/ Beneficiaries/2008-09/391 dated 31.3.2009, sent a Confidential Report regarding the accommodation entries provided by Sh. Tarun Goyal, CA, 13/34, WEA Arya Samaj Road, Karol Bagh, New Delhi and had enclosed a list of beneficiaries pertaining to CIT-III Charge, New Delhi.

The perusal of the report shows that sea4rch was conducted at the office premises of Sh. Tarun Goyal, CA 13/34, WEA, Arya Samaj Road, New Delhi, by the Investigation Wing on 15.9.2008.

The Addl. Director of Income Tax (Investigation), Unit-IV, New Delhi, has stated that “at the time of search on 15.9.2008, the Statement of Sh. Tarun Goyal, CA was recorded on oath. As per his statement he has accepted that he provides accommodation entries and his various companies are used for this purpose.

Detailed list of the beneficiaries of accommodation entries has been taken by the concerned ADIT (Inv.) for the AYs 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10.

As per the list, Sonarika Hotel (P) Ltd., PAN AAKCS1223L, has taken accommodation entries of Rs. 50,00,000/- accommodation entries of Rs. 50,00,000/- pertaining to assessment year 2008-09 from various companies of Sh. Tarun Goyal, CA.

S.No. Name of Account holder of entry giving Value of entry taken account 1 M/s Tajasvi Investments (P) Ltd. 50,00,000/- Total 50,00,000/- In view of the above, I have reasons to believe that at sum of Rs. 50,00,000/- represents income of M/s Sonarika Hotel (P) Ltd., PAN AAKCS1233L, for the AY 2008-09, which has escaped assessment within the meaning of provisions of section 147 of the I.T. Act, 1961, therefore a notice u/s. 148 of the Income Tax Act, 1961 is required to be issued and served upon the assessee to assess the income escaped assessment as stated, hereinabove.

Sd/- (Jitendra Kr. Gogia) Income Tax Officer, Ward 9(1), New Delhi” 12. After going through the reasons recorded by the ITO, Ward 9(1), New Delhi, we are of the view that AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Addl. Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt.

Year in dispute is bad in law and deserves to be quashed. Our view is supported by the following judgments/decisions:-

(A) The Tribunal in its decision dated 9.1.2015 passed in (AY 2003-04) in the case of G&G

Pharma India Limited vs. ITO, has held under:-

“8. We have perused the aforesaid reasons recorded by the AO for reopening the assessment in dispute and we are of the considered view that the AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. A mere reference is made to certain information received from the Investigation Wing which was supplied to the assessee vide AO’s letter dated

15.9.2010. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO had mechanically issued notices u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Investigation, Jhandewalan,

New Delhi. Keeping in view of the facts and circumstances of the present case and the law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. year in dispute is bad in law and deserves to be quashed. We draw our support from the judgments of the Hon’ble High Court of Delhi in the following cases:-

(i) Signature Hotels (P)_ Ltd. vs. ITO and another reported in 338 ITR 51 (Del) has under similar circumstances as follows:-

“For the A.Y. 2003-04, the return of income of the assessee company was accepted u/s.143(1) of the Income-tax Act, 1961 and was not selected for scrutiny. Subsequently, the Assessing Officer issued notice u/s.148 which was objected by the assessee. The Assessing Officer rejected the objections. The assessee company filed writ petition and challenged the notice and the order on objections.

The Delhi High Court allowed the writ petition and held as under:

“(i) Section 147 of the Income-tax Act, 1961, is wide but not plenary. The Assessing Officer must have ‘reason to believe’ that income chargeable to tax has escaped assessment.

This is mandatory and the ‘reason to believe’ are required to be recorded in writing by the Assessing Officer.

(ii) A notice u/s.148 can be quashed if the ‘belief’ is not bona fide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing

Officer, when he recorded the reasons. There should be a link between the reasons and the evidence/material available with the Assessing Officer.

(iii) The reassessment proceedings were initiated on the basis of information received from the Director of Income-tax

(Investigation) that the petitioner had introduced money amounting to Rs.5 lakhs during F.Y. 2002-03 as stated in the annexure. According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of section 147 of the Act. There was no reference to any document or statement, except the annexure.

The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income.

(iv) Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, S, had a paid up capital of Rs.90 lakhs and was incorporated on January 4,

1989, and was also allotted a permanent account number in September 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to the quashed.”

(ii). In the case of CIT vs. Atul Jain reported in 299 ITR 383 it has been held as under:- “Held, dismissing the appeals, that the only information was that the assessee had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque for that amount. The information did not indicate the source of the capital gains which in this case were shares. There was no information which shares had been transferred and with whom the transaction had taken place. The AO did not verify the correctness of information received by him but merely accepted the truth of the vague information in a mechanical manner. The AO had not even recorded his satisfaction about the correctness or otherwise of the information for issuing a notice u/s 148.

What had been recorded by the AO as his

“reasons to believe”was nothing more than a report given by him to the Commissioner. The submission of the report was not the same as recording of reasons to believe for issuing a notice. The AO had clearly substituted form for substance and therefore the action of the AO was not sustainable.”

9. In view of above, we are of the considered view that above issue is exactly the similar to the issue involved in the present appeal and is squarely covered by the aforesaid

decisions of the Hon’ble High Court of Delhi. Hence, respectfully following the above precedent, we decide the legal issue in dispute in favor of the Assessee and against the Revenue and accordingly quash the reassessment proceedings. The other issues are not dealt with as the same have become academic in nature.

allowed.”

(B). Pr. CIT vs. G&G Pharma India Ltd. in dated 8.10.2015 of the Delhi High Court wherein the Hon’ble Court 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.

13. 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 .

14. In the circumstances, the conclusion reached by the ITAT cannot be said to be erroneous. No substantial

question of law arises.

15. The appeal is dismissed.”

Order pronounced in Open Court on this 08-07-2016.