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Income Tax Appellate Tribunal, DELHI BENCHES “E” : DELHI
Before: SHRI BHAVNESH SAINI & SHRI PRASHANT MAHARISHI
Shri Natrajan Monie, The Income Tax Officer, S-19/001, The Close South, Ward – 2 (5), Nirwana Country, Sector-50, vs. Gurgaon. Gurgaon. PAN AAFPN2890N (Appellant) (Respondent) For Assessee : Shri Kapil Goel, Advocate For Revenue : Ms. Rinku Singh, Sr.DR Date of Hearing : 03.12.2020 Date of Pronouncement : 07.12.2020 ORDER PER BHAVNESH SAINI, J.M.
This appeal by Assessee has been directed against the Order of the Ld. CIT(A)-1, Gurgaon, Dated 30.01.2017, for the A.Y. 2011-2012, challenging the reopening of the assessment under section 147/148 of the I.T. Act, 1961, addition of Rs.59,50,000/- on account of cash deposit, confirming addition of Rs.1,50,000/- out of Rs.9,85,000/- and addition of income of Rs.7,72,461/- from MCX Business.
2 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. 2. We have heard the Learned Representative of both the parties through video conferencing and perused the material available on record.
Briefly the facts of the case are that this is a NMS Case. Notice under section 148 of the I T Act, 1961 was issued to the assessee on 11.02.2015, after duly recording the reasons. The assessee did not file his return of income. The A.O. issued statutory notice for completion of the assessment. The assessee filed information before A.O. which were discussed by the A.O. with the Counsel for Assessee. The A.O. noted that as per information available with him, assessee had received salary on which TDS had been deducted by the employer. The assessee has also made investment of Rs.10 lakhs in the purchase of Mutual Funds and deposited cash of Rs.52 lakhs in his ICICI Bank account in assessment year under appeal. Further the assessee had also made contract in commodity exchange exceeding Rs.10 lakhs. During the course of assessment proceedings the assessee furnished copy of Form No.16, Form No 26AS, statement of his bank accounts maintained with different Banks, copy of the computation of income and documents relating to MCX business made with 3 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. Aditya Birla Commodities Broking Ltd. The assessee also filed copy of the sale deed of property at Gurgaon Dated 21.03.2011 sold by assessee for a consideration of Rs.1.20 crores. The A.O. issued detailed show cause notice to the assessee and after considering the reply of the assessee, made certain additions and computed the total income at Rs.84,37,210/-. The net income of the assessee is computed as under :
Income from salary as discussed in Rs. 4,34,338/- para 3.1.
Income from interest as discussed Rs. 1,59,237/- in para 3.2. 3. Income from MCX business as Rs. 7,72,461/- discussed in para 3.3. 4. Income from unexplained cash Rs. 59,50,000/- deposits as discussed in para 3.4 5. Income from unexplained cash Rs. 9,85,000/- credits as discussed in para 3.5(i). 6. Income from profit on redemption of Rs. 1,32,174/- MF/FD as discussed in para 3.5(ii) TOTAL Rs.84,37,210/- 3.1. The assessee challenged the reopening of the assessment as well as additions on merit before the Ld. CIT(A). However, the appeal of assessee has been partly allowed. 4. Learned Counsel for the Assessee referred to the reasons recorded for reopening of the assessment which have been provided to the assessee under RTI Act, copy of which is 4 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. placed on record. He has submitted that A.O. in the reasons mentioned that assessee has made investment of Rs.2 lakhs for purchase of mutual fund and transaction of commodities exchange contract of Rs.10 lakhs in assessment year under appeal. He has submitted that A.O. has recorded wrong, incorrect and non-existing reasons and did not apply his mind to the material on record before recording reasons for reopening of the assessment. He has submitted that assessee did not make any fresh investment during subject period in mutual fund and even the A.O. did not make any addition on account of investment of Rs.2 lakhs for purchase of mutual funds. He has submitted that as regards transaction of commodity exchange contract of Rs.10 lakhs, A.O. has made addition of Rs.7,72,461/- on account of profit on the MCX business instead of Rs.11,80,571/- as mentioned in the show cause notice. The A.O. thus, recorded wrong, incorrect, non- existing facts / reasons and did not apply his mind to the information, which itself is also incorrect. He has referred to page-14 of the PB which is the details supplied to the assessee which may be the basis for reopening of the assessment and referred to item Nos.5, 6 and 9 which are information received 5 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. from CIB Code for deposit of cash of Rs.2 lakhs with the Bank, contract of Rs.10 lakhs or more in commodity exchange and payment of Rs.2 lakhs or more for purchase of units of mutual funds. He has submitted that these are incorrect information and did not relates to the assessee. He has, therefore, submitted that reopening of the assessment is illegal and bad in law and as such reopening of the assessment is liable to be quashed. He has submitted that no notice under section 142(1) or any query under section 133(6) have been issued. No letter have been delivered to the assessee.
On the other hand, Ld. D.R. relied upon the Orders of the authorities below as regards reopening of the assessment.
We have considered the rival submissions and perused the material on record. It is well settled Law that validity of the re-assessment proceedings is to be judged with reference to the reasons recorded for reopening of the assessment. The copy of the reasons for reopening of the assessment are placed on record which reads as under :
6 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon.
Monie Natrajan 1. Name and Address of the 1408, Beverley Part-II, DLF-II, Gurgaon. Assessee 2. PAN AAFPN2890N 3. Status INDL 4. Ward/Circle/Range Ward-2(5), Gurgaon 5. Assessment Year 2011-12 6. Date 11.02.2015
Reasons for initiating proceedings u/s. 147/148 of the Income Tax Act, 1961. Information has been received through NMS (P-1 category that during the period under consideration, the assessee had made investment of Rs.200000/- for purchase of mutual fund and transaction in commodity exchange contract of Rs.10,00,000/- during the assessment year 2011-12. As per record assessee do not have file return of income for the Assessment year 2011-12. The income chargeable to tax amounting to Rs.1200000/- which is chargeable to tax has escaped assessment and any other income found during the course of assessment proceedings which is chargeable to tax has escaped assessment. I have reasons to believe that the above said income/transaction of Rs.1200000/- and any other income found during the course of assessment proceedings which is chargeable to tax has escaped assessment which needs examination in the light of the information in my possession.
Notice under section 148 of the Income Tax Act, 1961 is being issued.
Sd/- Shamsher Singh Income Tax Officer Ward 2(5), Gurgaon.”
6.1. In view of the above reasons, the A.O. has mentioned that he has information received through NMS that assessee has made investment of Rs.2 lakhs for purchase of mutual funds and transaction of commodity exchange contract of Rs.10 lakhs in assessment year under appeal and thus, there is an escapement of income of Rs.12
7 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. lakhs. The A.O. also noted in the reason that this information needs examination. However, no material is produced before us if the A.O. made any investigation on the information supplied to him through NMS if there is any escapement of income in the case of assessee. Learned Counsel for the Assessee categorically stated at Bar that assessee has not made any fresh investment in assessment year under appeal in mutual fund. The written submissions to that effect is also placed on record. Learned Counsel for the Assessee has also categorically stated that A.O. has not made any addition of Rs.2 lakhs in assessment year under appeal which fact is corroborated by the net income computed by A.O. as reproduced above. It is, therefore, clear that neither assessee has made any investment of Rs. 2 lakhs for purchase of mutual fund in assessment year under appeal nor the A.O. has made any such addition in the assessment year. Therefore, such information received by A.O. was totally wrong, incorrect and non-existing and thus the fact mentioned in the reasons recorded for reopening of the assessment as regards investment made in 8 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. purchase of mutual fund is wrong, non-existing and incorrect. The A.O. has recorded wrong, incorrect and non- existing reasons for reopening of the assessment which is not permissible under Law. As regards the transaction in commodity exchange contract of Rs.10 lakhs, Learned Counsel for the Assessee referred to para-3.3 of the assessment order in which the A.O. has made addition of Rs.7,72,461/- on account of profit on the MCX business. The A.O. has also mentioned in the same para that in the show cause notice he has mentioned such income at Rs.11,80,571/- which is appearing at page-3 of the assessment order, but, after examination this figure was also found incorrect and A.O. has ultimately restricted the addition to Rs.7,72,469/- i.e., for income only but no addition is made of transaction of MCX Investment. Therefore, A.O. has recorded wrong, incorrect and non- existing facts in the reasons recorded for reopening of the assessment that assessee has made transaction in commodity exchange contract of Rs.10 lakhs. It may also be noted here that A.O. in the assessment order in para-2 has 9 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. mentioned that assessee has made investment of Rs.10 lakhs in purchase of mutual funds which fact is also incorrect and is contradictorily recorded in the reasons for reopening of the assessment for Rs.2 lakhs only. The A.O. in the assessment order has also recorded same statement that assessee has made contract in commodity exchange exceeding Rs.10 lakhs which fact was ultimately found incorrect by the A.O. himself and he has made part addition as against the income mentioned in the show cause notice. These facts clearly show that A.O. did not apply his mind to the information received through NMS and also recorded wrong, incorrect and non-existing facts in the reasons recorded for reopening of the assessment. Learned Counsel for the Assessee has also referred to page-14 which is supplied to the assessee under RTI which according to assessee was asked under the RTI Act. The first page of the RTI reply PB-10 shows that assessee has asked for the copy of the reasons for reopening of the assessment as well as details which are basis of reopening of the case under section 148 of the I.T. Act, 1961. Page-14 is the material
10 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. supplied by the A.O. which is the information summary in which information is supplied to assessee through CIB Code that there is a deposit in cash aggregating to Rs.2 lakhs or more with the Banking company, contract of Rs.10 lakhs or more in commodities exchange ,Rs. 2 lakhs or more paid for purchase of units of Mutual Fund. Rule 114E of the I.T. Rules provides the statement of financial transactions required to be furnished under sub-section (1) of Section 285BA of the Act in Form 61-A. This Rule provides that return or the statement shall be provided in respect of receipt from any person of an amount of Rs.2 lakhs rupees or more for acquiring units of mutual fund and other statements in different cases of the amount more than Rs.10 lakhs in different categories. It, therefore, appears that the information which A.O. has received as per page-14 of the PB was the details to be submitted under Rule 114E of the I.T. Rules. It may not be actual figure received by the A.O. as per NMS information. The actual figure might be different as is noted above. Therefore, such information received by the A.O. is not in accordance with Law and 11 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. would not provide any information to the A.O. to record reasons for reopening of the assessment as regards escapement of income for making the investment in purchase of mutual funds or transaction of different commodity exchange contract. Thus the entirety of facts clearly show that A.O. recorded wrong, incorrect and non- existing reasons for reopening of the assessment without application of mind. It may also be noted that A.O. himself has mentioned in the reasons that whatever information he has received through NMS needs examination in the light of information in his possession, but, he did not make any examination prior to recording reasons for reopening of the assessment and totally vague, non-existing, wrong and incorrect facts have been mentioned in the reasons recorded for reopening of the assessment. Further, the reopening of the assessment would be invalid if the A.O. wanted to make investigation out of information. Such exercise should have been prior to recording of the reasons. In support of our findings, we rely upon the following decisions.
12 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. 6.2. The Hon’ble Punjab & Haryana High Court in the case of CIT vs., Atlas Cycle Industries [1989] 180 ITR 319 (P&H) held as under :
“Held, (i) that the Tribunal was right in cancelling the reassessment as both the grounds on which the reassessment notice was issued were not found to exist, and, therefore, the Income-tax Officer did not get jurisdiction to make the reassessment.”
6.3. The Hon’ble Delhi High Court in the case of Pr. CIT vs., SNG Developers Ltd., [2018] 404 ITR 312 (Del.) in which it was held as under :
“Held, dismissing the appeal, that the reasons recorded by the Assessing Officer for reopening the assessment under section 147, issuing a notice under section 148 did not meet the statutory conditions. As already held by the Appellate Tribunal, there was a repetition of at least five
13 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. accommodation entries and the total amount constituting the so-called accommodation entries would therefore, not work out to Rs.95,65,510. It was unacceptable that the Assessing Officer persisted with his "belief" that the amount had escaped assessment not only at the stage of rejecting the assessee’s objections but also in the reassessment proceedings, where he proceeded to add the entire amount to the income of the assessee. Therefore there was non-application of mind on the part of the Assessing Officer. The Appellate Tribunal was justified in confirming the order of the Commissioner (Appeals) and holding that the reopening of the assessment was bad in law.”
6.4. The Hon’ble Delhi High Court in the case of Shamshad Khan vs., ACIT [2017] 395 ITR 265 (Del.) in which it was held as under :
14 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. “Held, allowing the petition, that the form for recording the reasons for initiating the proceedings under section 148 of the Act for obtaining approval of the Commissioner itself proceeded on the erroneous basis that the quantum of income which had escaped assessment was Rs.28,75,000 whereas the assessee had filed returns showing income of merely Rs.20,56,145 and it was on this basis that the Additional Commissioner and the Commissioner granted their approval for reopening the assessment. Even though the assessee highlighted this fundamental error at the initiation of the case by stating that his income was mentioned as Rs.20,56,145 instead of Rs.69,71,191, this was summarily rejected stating that it was a clerical mistake and that the latter figure would be treated as his income. If the correct income i.e. Rs.69,71,191 was put before the Commissioner at the time of seeking his approval, he might have taken a different view.
15 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. There was nothing on record to show that the clerical mistake of substituting Rs.20,56,145 for Rs.69,71,191 was ever brought to the notice of the Commissioner either before or after approval or sanction under section 151(1) of the Act. The initiation of the case for reopening of the assessment was erroneous and without application of mind especially since the Assessing Officer had not examined the return filed, which would have revealed that the assessee had filed regular returns, had sufficient opening balance in his account and the withdrawals therefrom substantiated the donation made. Therefore, the reopening of the assessment was unsustainable in law and the notice issued under section 147 of the Act was to be quashed.”
6.5. The Hon’ble Bombay High Court in the case of Siemens Information Systems Ltd., vs., ACIT & Others [2007] 293 ITR 548 (Bom.) held as under :
16 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. “The petitioner had several EOU/STP units engaged in the business of export of software. In response to the notice for reopening the assessment for the assessment year 1999-2000, the petitioner, objecting to the issuance of the notice, stated that the reasons furnished by the authority had quoted the provisions of section 10A as amended by the Finance Act, 2000, with effect from the assessment year 2001-02 and as such could not have been made applicable to the assessment year 1999-2000 and the notice had been issued under the mistaken belief about the correct position of law. However, opportunity to show cause was given to the petitioner as to why the loss claimed should not be disallowed to be carried forward. On a writ petition :
Held, allowing the petition, (i) that it would be clear from the reasons given that the authority proceeded on the presumption that the law applicable was the law after the amendment and 17 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. not the law in respect of which the petitioner had filed the return for the year 1999-2000. This by itself clearly demonstrated that there was total non-application of mind on the part of the authority and consequently, the notice based on that reason would amount to non-application of mind.
(ii) That the income derived by the assessee from an industrial undertaking to which section 10A applies could not be included in the total income of the assessee. Therefore, the petitioner was right in filing the return by excluding the income in terms of section 10A.”
6.6. In the case of Pr. CIT vs., RMG Polyvinyl (I) Ltd., 396 ITR 5 (Del.) the Hon’ble Delhi High Court held as under:
"In the present case too, the information received from the Inv. Wing cannot be said to be tangible material per se without a further enquiry being undertaken by the learned assessing officer"
18 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. 6.7. In the case of Pr. CIT vs., Meenakshi Overseas (P) Ltd., 395 ITR 677 (Del.), the Hon’ble Delhi High Court held as under :
"Reassessment notice condition precedent recording of reasons to believe that income has escaped assessment mere reproduction of investigation report in reasons recorded absence of link between tangible material and formation of ceding illegal Income Tax Act, 1961, Sec.147, 148"
6.8. In the case of Pr. CIT vs., G And G Pharma India Ltd., [2016] 384 ITR 147 (Del.), the Hon’ble Delhi High Court held as under :
“Reassessment condition precedent application of mind by assessing officer to materials prior to forming reason to believe income has escaped assessment - No independent application of mind to information received from Directorate of Investigation and no prima facie opinion formed- reassessment order invalid”.
19 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon.
6.9. In the case of Sarthak Securities Co. (P) Ltd., 329 ITR 110 (Del.), the Hon’ble Delhi High Court held as under :
[“No independent application of mind by the Assessing officer but acting under information from Inv. Wing - Notice U/s. 147 to be quashed”.
6.10. The crux of the above Judgments had been that in case incorrect, wrong and non-existing reasons are recorded by the A.O. for reopening of the assessment and A.O. failed to verify the information received due to non application of mind to information, reopening of the assessment would be unjustified and is liable to be quashed. Considering the totality of the facts and circumstances of the case and in the light of material on record, we are of the view that reopening of the assessment is illegal and bad in Law and is liable to be quashed. We, accordingly, set aside the Orders of the authorities below and quash the reopening of the assessment. Resultantly, all additions stand deleted. In view of the above, there is no need to decide other issues raised in the present appeal
20 ITA.No.1817/Del./2017 Shri Natrajan Monie, Gurgaon. which are left with academic discussion only. Accordingly, appeal of the Assessee is allowed.
In the result, appeal of the Assessee allowed.
Order pronounced in the open Court.