M/S. MAHAVIR CONCAST LTD.,NEW DELHI vs. ITO, NEW DELHI

Besides, the assessee/appellant has also filed an application for permission to raise following additional grounds: “On the facts and in the circumstances of the case, the Learned CIT(Appeals) has erred in affirming the jurisdiction of the Assessing Officer under sec. 147 and ignoring that it is case of borrowed 2 satisfaction in as much as the Assessing Officer has not applied his mind independently to the material received from investigation wing”.

In support of the above application, the Learned AR submitted that the assessee had raised the above issue before the Learned CIT(Appeals) and the Learned CIT(Appeals) had decided the ground against the assessee. However, while filing appeal before the ITAT in the first round, the counsel of the assessee failed to raise the above issue in the grounds of appeal

36. He submitted that the issue raised in the above additional ground is purely legal in nature which goes to the root of the matter and all the relevant facts for the disposal of the above additional ground are available on record and no new fact finding exercise is required. The Learned AR submitted that it is settled position of law that an assessee would not suffer on account of the mistake of his counsel. In support, he placed reliance on the decision of Hon'ble Madhya Pradesh High Court in the case of Mahavir Prashad Jain – 172 ITR 231 (MP). 3.1 The Learned AR submitted further that there would be no estoppels against the statute and if an income is not taxable under the four corners of the Income-tax Law, the same cannot be made taxable because of the mistake of the assessee. He submitted that an assessee can raise a legal 3 additional ground or even press legal plea at any stage of the proceedings. In support, he placed reliance on the following decisions: i) CIT vs. Varas International – 284 ITR 80 (SC); ii) NTPC Ltd. vs. CIT – 229 ITR 383 (SC); iii) DHL Operators – 108 TTJ 152 (SB); 3.2 The Learned AR submitted that the delay in raising the above additional ground may be condoned since there was no mala fide of the assessee behind it as it was due to lapse on the part of the counsel of the assessee. He submitted that when substantial justice and technical consideration have pitted against each other then the cause of substantial justice would prevail and placed reliance on the decision of Hon'ble Supreme Court in the case of Collector, Land Acquisition Vs. Mst. Katiji & Ors. – 167 ITR 471 (SC). He submitted further that it is also an established position of law that a ground not pressed before the Learned CIT(Appeals) can be pressed before the ITAT and cited the decision in the case of Ramila Ben Vs. CIT – 282 ITR 176 (Guj.).

The Learned Senior DR on the other hand opposed the application with this contention that it is second round of appeal before the ITAT and 4 since the authorities below have confined themselves in passing the order in compliance to the directions of the ITAT, no fresh ground can be permitted to be raised at this stage before the ITAT.

Considering the above submissions, we find that there is no dispute that an issue legal in nature, going to the root of the matter and adjudication of which does not require consideration of fresh material outside the record can be raised for the first time even at appellate stage. In the present case, however, the issue is when the assessee did not raise the issue which is of course legal in nature, going to the root of the matter and adjudication of which does not require consideration of fresh material, in the first round of the appeal before the ITAT and the ITAT set aside the matter to the file of the Assessing Officer with the direction to confront with the report of DIT (Inv.), etc. and to decide the issue of validity of the claimed share application receipt afresh and in compliance the Assessing Officer has passed the assessment order leading to the appeal before the ITAT, can the assessee raise the above issue by way of the additional ground for the first time before the ITAT. The ratios of above cited decisions of the Learned AR are that an issue which is legal in nature, going to the root of the matter and adjudication of which does not require consideration of fresh material can be 5 raised for the first time before the ITAT and that when substantial justice and technical consideration are pitted against each other, then the cause of substantial justice deserves to be preferred, for the other side cannot claim to have a vested rights in justice being done because of a non-deliberate delay. In other words, substantial justice will always prevail over the technical hurdle and thus an issue which is legal in nature, going to the root of the matter and adjudication of which does not require consideration of fresh material outside the record can be raised at any stage even for the first time before the highest forum i.e. Hon'ble Supreme Court. When we apply this logic on the allowability of the present application for permission to adjudicate the above additional ground, we find substance in the contention of the Learned AR that such issues in the above additional ground can be raised for the first time even in the second round of appeal before the ITAT. In this regard, we also find strength from the principle that there is no estoppel against the law. The Hon'ble Supreme Court in the case of CIT vs Varas International P. Ltd. (supra) has been pleased to hold that though the issue that the fee under Rule 6 of the West Bengal Excise (Manufacture of country spirit in labeled and capsule bottles) Rules, 1079 was a countervailing duty had not been squarely raised by the department before the Appellate Tribunal, the court could not shut out what was pure question 6 of law from consideration and an opportunity had to be granted to the department of meeting this case. Hon'ble Supreme Court accordingly remanded the matter to the Appellate Tribunal for deciding the issue. We thus allow the application with direction to the parties to advance their respective arguments on the issue raised in the additional ground.

In support of the above additional ground, the Learned AR submitted that the reasons recorded for initiation of reopening proceedings are vague, solely based on information received from the investigation wing of the department and showing non-application of mind on the part of the Assessing Officer. He submitted that there was nothing on record to suggest even prima facie that the shown transactions of Rs.9 lacs through banking channel were stood to benefit the assessee from the entry provider. He submitted that forming of belief on the part of the Assessing Officer is seen as on the date of recording of the reasons. He referred the reasons, a copy whereof has been made available at page No. 6 of the paper book, reproduced hereunder: “ Reasons Name of assessee: M/s.Malibu Finance & Investment A.Y. 2004-05 Ltd. The Director of Income-tax (Investigation), New Delhi had sent a report in the case of beneficiaries and operators of accommodation entries in Delhi. The CIT, Delhi-II, had enclosed the CD received 7 from CCIT-II, New Delhi, containing supplementary list of beneficiaries and operators of accommodation entries in Delhi. The letter was accompanied with a detailed report. The perusal of the report shows which enclosed as annexure ‘A” The investigation wing is also a part of the Income Tax Department and whatever enquiry work is done by the officers posted in that Wing is valid and legal. Moreover, the investigation wing is a specialized wing and the officers of the investigation wing perform special jobs which included the search & seizure operation and the conduction of enquiries by the field officers in the Commissionerate charges lack the wherewithal and expertise to conduct such large amount of enquiries. It is normal practice to send the result of such enquiries to the field officers for taking further necessary action. In view of the above credible information received from the DIT(Inv.), New Delhi, I have reasons to believe that the income of Rs.9,00,000-, who stands as beneficiary from the entry provider has escaped assessment to the extent of Rs.9,00,000 as per the provision tax act, 1061. I am, therefore, satisfied that the said income on account of accommodation entry worth Rs.9,00,000 received by the assessee, has escaped assessment and accordingly after recording the above said reasons as laid down under the provisions of sec. 148(2) of the Income-tax Act, 1961 notice u/s. 148 is being issued.”

In support of the above submission, the Learned AR placed reliance on the following decisions:

The Learned Senior DR on the other hand placed reliance on the orders of the authorities below with the submission that in the reasons recorded, name of the assessee as beneficiary from the entry provider has been specifically mentioned and the reasons have been recorded by the Assessing Officer after applying his mind on the information received from the Investigation Wing of the Department. She submitted further that in the reasons recorded, the Assessing Officer has to form a prima facie belief that taxable income has escaped assessment. She submitted further that sufficiency of reasons cannot be questioned before the court of law as it is always subject to the outcome of the reassessment framed giving opportunity of being heard to the assessee.

Considering the above submissions and having gone through the above cited decisions, we come to the conclusion that reopening proceedings cannot be initiated with casual approach. It was the reason behind that the legislature consciously has put several restrictions like recording of reasons 9 to believe etc. as a pre-condition on the part of the Assessing Officer for initiation of reopening proceedings. When we examine the reasons recorded in the present case in view of the ratios laid down in the above cited decisions, we find that the reasons recorded are vague as there is no mention as to how and in what manner the income of the assessee has escaped assessment and nor is there mentioning of any material on which by applying his mind the Assessing Officer came to the conclusion that three entries of Rs.3 lacs each through bank were appearing as accommodation entries meant for benefiting the assessee. The Hon'ble jurisdictional High Court of Delhi in the case of Signature Hotel Pvt. Ltd. vs. ITO (supra) has been pleased to hold that section 147 of the Income-tax Act, 1961 is wide but not plenary. The Assessing Officer must have “reason to believe” that an income chargeable to tax has escaped assessment. This is mandatory and the “reasons to believe” are required to be recorded in writing by the Assessing Officer. Sufficiency of reasons is not a matter, which is to be decided by the writ court, but existence of belief is the subject matter of the scrutiny. A notice under sec. 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 reason. The 10 Hon’ble Court has been pleased to hold further that there should be a link between the reasons and the evidence/material available with the Assessing would mean cause or justification of the Officer. The “reasons to believe” Assessing Officer to believe that the income has escaped assessment and not that the Assessing Officer should have finally ascertained the fact by legal evidence or reached a conclusion, as this is determined and decided in the assessment order, which is the final stage before the Assessing Officer. We thus respectfully following the ratios laid down in this decision of Hon'ble jurisdictional High Court hold that in the present case the reasons to believe recorded by the Assessing Officer based on the information received from the Investigation Wing of the Department alleging involvement of the assessee in accommodation entry for initiation of reopening proceedings was vague and without application of mind on the part of the Assessing Officer for forming the belief as on the date of recording of the reason that there was escapement of assessment of taxable income. We thus hold that initiation of reopening proceedings in the present case was not valid and nor the assessment framed in furtherance thereto. In result, the assessment is held void-ab-initio and is accordingly quashed. The additional ground is accordingly allowed.