ACIT, NEW DELHI vs. M/S. SNG DEVELOPERS LTD., NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘G’ NEW DELHI BEFORE SH. I.C. SUDHIR, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No. 735/Del/2012 Assessment Year: 2003-04 ACIT, Circle-9(1), Room No. Vs. M/s. SNG Developers Ltd. 163, C.R. Building, New (Earlier Known as SN Jee Delhi Developers) 112, Indra Prakash Building, 21, Barakhamba Road, New Delhi GIR/PAN :AAFCS8465B (Appellant) (Respondent) And C.O. No. 110/Del/2012 [In ITA No. 735/Del/2012] Assessment Year: 2003-04 M/s. SNG Developers Ltd. Vs. ACIT, Circle-9(1), Room No. (Earlier Known as SN Jee 163, C.R. Building, New Developers) 112, Indra Delhi Prakash Building, 21, Barakhamba Road, New Delhi GIR/PAN :AAFCS8465B (Appellant) (Respondent) Department by Smt. Anima Barnwal, Sr.DR Assessee by Sh. Ram Samujh, Adv. Date of hearing 13.06.2016 Date of pronouncement 29.07.2016

2 ITA No. 735/Del/2012 & C.O. No. 110/Del/2012 AY: 2003-04 ORDER PER O.P. KANT, A.M.: This appeal by the Revenue and cross objections of the assessee are directed against order dated 19/08/2011 of learned Commissioner of Income-tax (Appeals)-XII, New Delhi for assessment year 2003-04. The grounds of appeal raised by the assessee in ITA No. 735/Del/2012 are as under: i. The learned Commissioner of Income Tax(Appeals) erred in law and on the facts and circumstances of the case in quashing the proceedings initiated u/s 147 of the I.T. Act. ii. The learned Commissioner of Income Tax (Appeals) erred in law and on the facts and circumstances of the case in deleting the addition of Rs. 95,65,510/- made by the Assessing Officer on account of accommodation entries received during the year. iii. The appellant craves to amend modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal. 2. The cross objections raised by the assessee in C.O No. 110/Del/2012 are as under: i. That on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in law and on facts by holding that once the second notice dated 31.03.2010 was issued under section 148, the first notice dated 19.03.2010 issued under sec. 148 has become redundant. The finding of the learned Commissioner of Income Tax (Appeal) is contrary to the judicial pronouncements in the case of Indian Tube Co. Ltd. Vs. Income Tax Officer (2005) 272 ITR 439 (Cal.), Sukhlal Ice & Cold Storage Co. Vs. Income Tax Officer (1993) 199 ITR 129 (All.) and Ashok Kumar Dixit Vs. Income Tax Officer (1992) 198 ITR 669 (All.)

3 ITA No. 735/Del/2012 & C.O. No. 110/Del/2012 AY: 2003-04 ii. That on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) erred in law and on facts by not giving any finding on the case laws cited on page 2 of the written submission dated 27.05.2011 on the subject relevant to two notices issued simultaneously under sec. 148. iii. That the appellant craves leave to add, amend or alter the ground of the appeal. 3. The facts in brief are that the assessee filed return of income on 25/11/2003, declaring income of Rs. 76,340/-. Subsequently, on receipt of information from the Investigation Wing that the assessee had taken accommodation entries worth Rs. 95,65,510/- from various parties, a list of which was supplied to the Assessing Officer by the Investigation Wing, the Assessing Officer (‘AO') issued notice under section 148 of the Income tax Act, 1961 (in short “the Act”) on 31/3/2010. The copy of reasons for reopening the case were duly communicated to the assessee 10/09/2010 and preliminary objections to the reopening proceedings were rejected by the AO through an order dated 24/09/2010. Thereafter, notice under section 143(2) and 142(1) of the Act were issued, however, due to non-compliance by the assessee the assessment was completed under section 144 of the Act on making addition of Rs. 95,65,510/- as unexplained cash credit. Aggrieved, the assessee filed appeal before the learned Commissioner of Income-tax (Appeals), who after considering the objection of the assessee challenging the issue of notice under section 148 of the Act as well as the additions made in respect of unexplained credit, allowed the appeal of the

4 ITA No. 735/Del/2012 & C.O. No. 110/Del/2012 AY: 2003-04 assessee. Aggrieved with the impugned order, the Revenue is in appeal before us and the assessee has filed cross objections to it. 4. At the time of hearing, it was observed that there was delay in filing appeal by the Revenue, therefore, an application condonation of the delay has been filed by the Assessing Officer. It was submitted by the learned Sr. Departmental Representative that limitation for filing appeal in this case was expired on 18/11/2011, whereas the appeal has been filed on 13/02/2012. The Registry has also pointed out delay of 87 days in filing the appeal. The learned Sr. Departmental Representative further submitted that due to proceeding on leave by the dealing Inspector for his marriage, the relevant file could not be placed before the authorities on time and as soon as the time of preparing statistical information, when it was noticed, the appeal has been filed. It was submitted that the delay was due to unintentional and bonafide mistake and therefore delay might be condoned. 4.1 On the other hand, learned Authorized Representative opposed the condonation of the delay, 4.2 We have heard the rival arguments on the issue of the condonation of the delay. We find that the delay was due to reasonable cause and bonafide mistake and the appeal has been filed as soon as the mistake has been detected. In view of the facts and in the interest of justice, we condone the delay in filing the appeal and admit the same.

5 ITA No. 735/Del/2012 & C.O. No. 110/Del/2012 AY: 2003-04 5. First, we take up the cross objection raised by the assessee challenging the omission by learned Commissioner of Income-tax (Appeals) in not deciding the issue of two notices issued simultaneously under section 148 of the Act . 5.1 At the outset of hearing, the learned Authorized Representative referring to page 19 of the first paper book of the assessee submitted that the first notice under section 148 of the Act in the case of the assessee was issued on 19th of March, 2010 and even during the pendency of proceedings under section 147 of the Act vide notice dated 19/03/2010, the AO issued another notice, dated 31/03/2010, which was served on the assessee on 02/04/2010. The learned Authorized Representative accordingly submitted that proceeding of Sec. 148 of the Act through notice dated 31/03/2010 were not validly initiated and deserves to be quashed on this ground . 5.2 On the contrary, the learned Sr. Departmental Representative referring to page 20 of the assessee’s paper book submitted that the second notice under section 148 dated 31/03/2010 was issued by the Assistant Commissioner of Income Tax, Circle 9(1), New Delhi, who was having valid jurisdiction over the assessee and the earlier notice dated 19/03/2010 was without jurisdiction and, therefore, having no sanctity of the law. 5.3 In the rejoinder submission, the learned Authorized Representative submitted not to press the cross objection. 5.4 We heard the rival submission and perused the material on record, however, since the learned Authorized

6 ITA No. 735/Del/2012 & C.O. No. 110/Del/2012 AY: 2003-04 Representative did not press the cross objection, therefore, the same is treated as withdrawn and dismissed. 6. Now, we take up the appeal of the Revenue. In ground No. 1, the Revenue has challenged quashing of proceedings initiated under section 147 of the Act 6.1 The learned Sr. Departmental Representative (DR) supporting the order of the Assessing Officer submitted that the reasons were recorded after receipt of information from the Investigation Wing that the assessee obtained accommodation entry of Rs. 95,65,510/- from different entry operators and the information was specific to the extent of name of bank and branch of bank, date on which entry taken amount of entry taken, instrument through which entry taken etc. and thus the information could not be treated as vague. She further submitted that the reliance on the judgment of the various High Court was placed by the learned Commissioner of Income-tax (Appeals) without examining the facts of the case of the assessee. The learned Sr. Departmental Representative, further relying on the judgment of the Apex Court in the case of Raymond Woollen Mills, reported in 236 ITR 34, submitted that at the stage of issuing notice under section 148 of the Act, sufficiency of reasons was not to be examined. She also relied on the judgment in the case of S. Narayan Appa, reported in 63 ITR 219. Further, relying on the judgment in the case of the Parfful Chunnilal reported in 236 ITR 832 submitted that no court can sit on the judgment of the AO of sufficiency of reason to believe. The learned Sr. Departmental Representative also

7 ITA No. 735/Del/2012 & C.O. No. 110/Del/2012 AY: 2003-04 relied on the judgment of the jurisdictional High Court in the case of AGR Investment, reported in 333 ITR 146 and submitted that information received from the Investigation Wing are from reliable source. In view of the above, she submitted that the order of the learned Commissioner of Income-tax (Appeals) was a non-speaking order and, therefore, finding of the learned Commissioner of Income-tax (Appeals) on the issue need to be reversed. 6.2 The learned Authorized Representative (AR) of the assessee on the contrary, relying on the finding of the learned Commissioner of Income-tax (Appeals) submitted that the Assessing Officer has merely referred to the information received from the Investigation Wing and recorded reasons without applying his mind. The learned Authorized Representative submitted that there was repetition of entries in the reasons recorded by the AO, which shows that, he did not take due care in recording reasons. The learned Authorized Representative relied on the decision of the Tribunal in the case of G.N. International Private Limited Vs. ACIT in ITA No. 6323/Del/2012, which has considered judgment of the jurisdictional High Court including the judgment in the case of Signature Hotels Private Limited Vs. ITO, Writ Petition(Civil) No. 8067/2010, order dated 21/07/2011. 6.3 We have heard the rival submissions and perused the material on record. In the case of GN International Private Limited (supra), the Tribunal considered the judgment of the Hon’ble Jurisdictional High Court in the case of Signature Hotels

8 ITA No. 735/Del/2012 & C.O. No. 110/Del/2012 AY: 2003-04 Private Limited (supra) and other decisions. The learned Commissioner of Income-tax (Appeals) has also relied on the judgments of the Hon’ble High Court in the case of Signature Hotels Private Limited and others judgments and then arrived at a conclusion that the Assessing Officer did not apply mind independently while reopening the assessment. The relevant part of the decision in the case of GN International Private Limited(supra) is reproduced as under: “10. Having gone through the above cited decisions, we find that the ratio laid down in the cited decisions is that the Assessing Officer by applying his own mind has to form his reasons to believe that income chargeable to tax has escaped assessment. Such belief is to be formed by him on the basis of material available to him on that very date when he records his reasons to believe. Of course, forming of this reason to belief is prima facie in nature but even for arriving at this prima facie belief, he has to apply his mind to arrive at a satisfaction to that effect. Even in this decision of Hon'ble Delhi High Court in the case of CIT vs. India Terminal Connector System Ltd. (supra) relied upon by the learned Senior DR, the decision in the case of Rajat Exports Import India Pvt. Ltd. vs. ITO - W.P.(C) No. 8341/2011 dated 18.1.2012 has been referred wherein the contention of the assessee has not been disputed that the validity of the reopening of the assessment should be judged only with reference to the reasons recorded by the Assessing Officer under sec. 148(2) at the time of issue of notice of reopening and any other material sought to be relied upon later, with a view to strengthening or improving the reasons, cannot be looked into by the Court. Thus, in our view, facts of each case are required to be gone into to arrive at a conclusion as to whether there was material available at the time of recording reasons for the reopening to form a prima facie view that income chargeable to tax has escaped assessment. In the case of Sarthak Security Co. (P) Ltd. vs. ITO (supra) relied upon by the Learned AR,

9 ITA No. 735/Del/2012 & C.O. No. 110/Del/2012 AY: 2003-04 Assessing Officer was made aware of the situation by the Investigation Wing and there was no mention that the company who had invested shares in petitioner company were fictitious. What were mentioned was that these companies were used as conduits. Assessee in his objection had clearly stated that the company had bank accounts and payments were made to the assessee company through banking channel. Identity of companies was not disputed. The Hon'ble Delhi High Court held that it would not be appropriate to require the assessee to go through the entire gamut of reassessment proceedings. Neither the reasons in the initial notice nor the communication providing reasons remotely indicated independent application of mind by the Assessing Officer. Notice issued under sec. 148 was accordingly quashed. In the case of CIT vs. India Terminal Connector System Ltd. (supra) relied upon by the learned Senior DR, the decision in the case of Sarthak Security Co. Pvt. Ltd. (supra) has been distinguished on the facts of these two cases before the Hon'ble High Court. In that case, the Hon'ble High Court has observed that at that stage, it is not necessary to have the established fact of escapement of income but what is necessary is that there is relevant material on which a reasonable person would have formed the requisite belief. To elaborate the conclusive proof is not germane at this stage but the formation of belief must be on the base of foundation or platform of prudence which a reasonable persons is required to apply. The Hon'ble High Court noted further that it was manifest from the perusal of the supply of reasons and the order of rejection of objection, the names of the company were available with the authority, their existence was not disputed. What was mentioned was that these companies were used as conduits. The assessee on the other hand in his objection had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Again in the case of Signature Hotels (P) Ltd. vs. ITO (supra) before the Hon'ble High Court of Delhi, the first sentence of the reasons stated that information had been received from Director of Income-tax

10 ITA No. 735/Del/2012 & C.O. No. 110/Del/2012 AY: 2003-04 (Inv.) that the petitioner had introduced money amounting to Rs.5 lacs during the financial year 2002-03 as per the details given in annexures. The said annexures related to a cheque received by the petitioner from Swetu Stone P.V. from the bank and the account number mentioned therein. The last sentence recorded that the as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary. The Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Hon’ble Court held that the reasons recorded reflect that the Assessing Officer did not independently apply his mind to the information received from the Director of Income-tax (Inv.) and arrive at a belief whether or not any income had escaped assessment. The writ petition was accordingly allowed by the Hon'ble High Court and proceedings under sec. 148 of the Act were quashed. In the case of CIT vs. Suren International Pvt. Ltd. (supra) in para No. 14 of the judgment, Hon'ble Delhi High Court has observed that a perusal of the table of alleged accommodation entry included in the reasons as recorded, discloses that the same entries have been repeated six times. This is clearly indicative of the callous manner in which the reasons for initiating reassessment proceedings are recorded. The Hon'ble High Court has shown its unableness to countenance that any belief based on such statement can ever be arrived at. The Hon'ble High Court has been pleased to hold that the reasons have been recorded without any application of mind and thus no belief that income had escaped assessment can be stated to have been formed based on such reasons as recorded. 11. When we examine the facts of the present case to find out as to whether the Assessing Officer while recording his satisfaction to initiate reopening proceedings had applied his independent mind to form his reasons to believe that income chargeable to tax has escaped assessment, we find that the reasons to believe are based on the

11 ITA No. 735/Del/2012 & C.O. No. 110/Del/2012 AY: 2003-04 information received from the Investigation Wing of the Department that name of the assessee figure as one of the beneficiaries of theses alleged bogus transactions given by the Directorate after making the necessary inquiries. It has been noted in the reasons that the report of the Directorate of Investigation reveals that there has been a systematic plan by unscrupulous persons/entities in which the cash is given to the entry providers who in turn issues the cheques of the equal amount to the beneficiaries. In the reasons recorded though the Assessing Officer has written that he had examined the investigation carried out and the data of such beneficiaries as compiled by the Directorate of Investigation but he has not mentioned about such examination nor the outcome thereof. The assessee filed his objection on 21.7.2011 against the said reopening of the assessment pointing out that there was repetition of some entries totaling to Rs.30 lacs and in the objection filed on 11.11.2011, it was pointed out that actual share application money was received only to the extent of Rs.35 lacs and not Rs.65 lacs as mentioned in the reasoning. The Assessing Officer rejected the assessee’s objection vide order dated 19.08.201 1. The assessee has submitted that the Assessing Officer failed to provide the list of entry operators, copy of their statement and other evidences provided by the investigation wing of the department. It was contended further that the Assessing Officer failed to provide the opportunity to cross examine the entry operators and the share applicants. It was submitted that all the share applicants are in existence having PAN and they are assessed to income tax, they had also filed their confirmation with other supported evidences and all the share application money was received through banking channels and the shares were already allotted to them in lieu of said share application money. Considering these material aspects of the fact of the present case, we find that the Assessing Officer has not applied his mind and has recorded his satisfaction forming reasons to believe merely on the basis of information received from the investigation wing of the department and ignoring the objections raised by the assessee in this regard. The object of the legislator

12 ITA No. 735/Del/2012 & C.O. No. 110/Del/2012 AY: 2003-04 behind recording of reasons to belief that a chargeable income has escaped assessment is a precautionary measure that an assessee should not go through the entire gamut of reassessment proceedings on the basis of casual and routine approach of the Assessing Officer to justify the initiation of reopening. We thus respectfully following the ratio laid down in the above cited decisions of the Hon’ble jurisdictional High Court of Delhi hold that neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind by the Assessing Officer, hence, notice under sec. 148 of the Act is quashed. In consequence, the assessment made in pursuance to the said invalid notice is also held void and is quashed as such. The objections raised in the cross objection preferred by the assessee are accordingly allowed.

6.4 The Tribunal has observed the fact of repetition of entries and held that it indicated of the callous manner in which the reasons for initiating proceedings were recorded. The Tribunal has already summarized the findings in the case of various High Court judgments including judgments in the case of Signature Hotels Private Limited (supra). 6.5 When we examine the facts in the present case, it is relevant to refer the pages 36 to 37 of the assessee’s paper book containing the reasons recorded by the Assessing Officer for reopening of the assessment, which are reproduced as under: “Return of income in this case was filed on 25/11/2003 declaring total income of Rs.76,340/- which was processed vide order u/s 143(1) dated 16/02/2004. The Directorate of Income Tax (lnv.), New Delhi has carried out a detailed enquiry about the persons/companies

13 ITA No. 735/Del/2012 & C.O. No. 110/Del/2012 AY: 2003-04 engaged in the business of providing accommodation entries to various companies. Information has been received alongwith the statements of-persons who had admitted that they were in the business of providing accommodation entries and they were not doing any business but were engaged in the activity of providing accommodation entries to other concerns. These persons used to issue cheques in lieu of cash received after deducting their commission and these cheques were generally issued as share application money/unsecured loans. As per the information received, the above named assessee M/s. SNG Developer Ltd. (Earlier known as S N JEE Developers (P) Ltd.) has also received the accommodation entries during the F.Y. 2002-03 as per annexure -B attached. These accommodation entries involving total amount of Rs. 95,65,510/- represent the assessee’s own unaccounted money. In view of above, I have reason to believe that an income of Rs. 95,65,510/- has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. Since, as per the available records the assessment was not made in this case u/s 143(3) or 147 of the Act and period of 4 years has elapsed, proposal is hereby submitted alongwith the relevant assessment records to the Addl. Commissioner of Income Tax, Range-9, New Delhi for consideration and necessary approval in accordance with the provisions of section 151(2) of the IT Act, 1961 for issuance of notice u/s 148 of the I.T. Act.”

6.6 We find from the above that the Assessing Officer has mentioned that the Directorate of Income Tax (Investigation), New Delhi, has carried out enquiries in respect of the persons/companies engaged in the business of providing

14 ITA No. 735/Del/2012 & C.O. No. 110/Del/2012 AY: 2003-04 accommodation entries to various companies and these persons used to issue cheques in lieu of cash received after deducting their commission and the cheques were generally issued as share application money/unsecured loan. This was a general description of the modus operandi of accommodation entry but the Assessing Officer nowhere mentioned in the reasons recorded as what was stated by those entry operators in respect of the assessee. We find that even in the assessment order also the Assessing Officer has not given details what was stated by the so-called entry operators in respect of the entries related to the assessee. It was submitted by the assessee that no opportunity to cross-examine the entry operators was provided by the Assessing Officer. Further, from the table of the accommodations entries, which the assessee is said to have received, reproduced in the assessment order, we find that there are five instances, where the entries have been repeated. We find that, the Tribunal in the case of GN International Private Limited (supra) also observed similar facts of receiving information from the Directorate of Investigation and the repetition of entries and held that the Assessing Officer did not apply independent mind while recording the reasons, hence the proceeding under section 148 of the Act, are quashed. Further, the cases relied upon by the learned Sr. Departmental Representative are on the issue of sufficiency of reasons for reopening of the assessment and not on the issue of application of mind by the Assessing Officer. Thus, respectfully following the decision of the Tribunal in the case of G.N. International

15 ITA No. 735/Del/2012 & C.O. No. 110/Del/2012 AY: 2003-04 Private Limited (supra) and judgment of the Hon’ble High Court in the case of Signature Hotels Private Limited (supra), we hold that the Assessing Officer has not applied his independent mind while recording the reasons in this case and, therefore, proceedings under section 147 of the Act initiated by way of issue of notice under section 148 of the Act are quashed. Accordingly, the finding of the learned Commissioner of Income-tax (Appeals) on the issue in dispute are upheld and the ground of the appeal is dismissed. 7. In ground No. 2, the Revenue has challenged the deletion of addition of Rs. 95,65,510/- on account of accommodation entries received by the assessee during the year. Since in the ground No. 1, we have already quashed the reassessment proceedings, therefore, the issue in ground No. 2 is rendered only academic, hence we are not adjudicating on the issue. 8. In the result, the cross objection filed by the assessee as well as the appeal filed by the Revenue are dismissed. The decision is pronounced in the open court on 29th July, 2016.

Sd/- Sd/- (I.C. SUDHIR) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29th July, 2016. Laptop/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi