MAJOR METALS LTD,NAVI MUMBAI vs. DCIT CC 20, MUMBAI

1 The captioned appeal by assessee for Assessment Year [AY] 2007- 08 assails the order of Ld. Commissioner of Income Tax (Appeals)-39 [CIT(A)], Mumbai dated 07/01/2015 qua reassessment on legal grounds as well as on merits which we take up in subsequent paragraphs. Since, legal issue goes to the root of the matter, we take up the same first.

Briefly stated the assesse, being resident corporate assesse, was subjected to an assessment u/s 143(3) read with Section 147 of the Income Tax Act, 1961 vide Assessing Officer [AO] order dated 25/03/2013 at Rs.1,40,52,170/- after disallowance of Rs.55.00 Lacs u/s 68 on account of Share Application money as against returned income of Rs.80,57,330/- filed by assessee on 29/09/2007 which was originally assessed u/s 143(3) at Rs.85,52,170/-. The assesse was engaged in the business of import and trading activities of various kinds of non- ferrous metals. The assessment was reopened by issuance of notice u/s 148 dated 08/02/2012 which was duly served on the assessee. As per the reasons recorded, the reopening was triggered pursuant to search operation conducted u/s 132 on 26/04/2007 on a person namely Giriraj Vijayvargiya [G.V.] who admitted to having provided accommodation entries in the form of gifts, loans and share application money from financial Year 1999-2000 to 2005-06 in exchange of cash against commission of 2-3.5%. During the assessment proceedings of G.V., a statement from the director of the assessee company namely Vikas Major Metals Limited Assessment Year 2007-08 Berlia was recorded u/s 131 who claimed the transactions to be genuine as against accommodation entries admitted by G.V. Consequently, the case of the assessee was reopened by issuance of the said notice and finally resulted into impugned additions of Rs.55.00 Lacs. The same, on merits, was confirmed by Ld. CIT(A) which is an ex-parte order as the assessee failed to attend the proceedings therein. Aggrieved, the assessee is in appeal before us.

At the outset, the Ld. Counsel for assessee [AR] has assailed the reopening on legal ground by stating that the reopening has been done merely on the basis of the statement of a third party where the said party admitted to have entered into accommodation entries by way of share application money with the assessee in sharp contrast to the fact that the assessee never received any share application money from the said party / group in the impugned AY and therefore, the very basis of reopening stood vitiated and reflects non-application of mind on the part of the AO. Our attention is also drawn to the fact that on similar facts and circumstances, reopening has been quashed by the Tribunal in assessee’s own case for AY 2003-04, 2004-05, 2005-06 & 2006-2007, the copies of which have been placed before us.

Per contra, the Ld. Departmental representative contended that the reopening has been done within a period of four years from completion of relevant AY and therefore, only one condition viz. reasons to believe that the income has escaped assessment was required to be fulfilled by the AO to initiate reassessment which apparently has been fulfilled and therefore, the reopening was perfectly valid. Our attention has been drawn to the fact that the third party categorically admitted to having Major Metals Limited Assessment Year 2007-08 provided accommodation entries in the form of Share Application money in exchange of cash, which in itself, was sufficient to reopen the assessment at that stage.

We have heard the rival contentions and perused relevant material on record. So far as the condition of reopening is concerned, we are in agreement with the Ld. DR that since reopening was within four years from end of relevant AY, only one conditions viz. reasons to believe that the income has escaped assessment was required to be fulfilled by the AO and nothing more. However, it is also well settled principle that the AO must be in possession of some tangible material so as to justify the reopening and that material should lead to formation of belief on the part of the AO that certain income has escaped assessment and also the material should have live link with the formation of the belief, which in our opinion is missing in the instant case. Upon perusal of point no. 3 of the said reasons, as placed in the paper-book, wherein it is stated that:- “3. During the course assessment proceedings in the case Shri Giriraj, it was found that from F.Y.1999-2000 to 2005-06 he had given accommodation entries totaling to ………” (emphasis being supplied by us)

Since we have already held the reopening bad in law, we see no reason to delve into the merits of the case any further.

Resultantly, the assessee’s appeal stand allowed in terms of our above order. Order pronounced in the open court on 12th May, 2017.