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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: These two appeals of the assessee are directed against two separate orders dated 31/10/2009 and 26/03/2010 passed by the learned Commissioner of Income-tax (Appeals)-XVII, New Delhi, for assessment years 1999-2000 and 2001-02 respectively. The grounds raised
in both the appeals are identical except the change of amounts involved, and therefore, both the appeals are heard together for the sake of convenience and brevity and are disposed of by this consolidated order.
2. The grounds of appeal raised in 1999-2000 are reproduced as under: i. That having regard to the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals) has erred in law 2 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 and on facts in confirming the action of learned Assessing Officer in framing impugned assessment order without complying with mandatory conditions of section 147 to 151 of the Income Tax Act, 1961 and reopening of the case is bad in law and beyond the jurisdiction of the learned Assessing Officer. ii. That having regard to the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of learned Assessing Officer in framing impugned assessment order without disposing off the objections of the appellant against the reasons recorded. iii. That having regard to the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals) has erred in law and on facts in not quashing the impugned assessment order which was passed without recording satisfaction of joint commissioner of income tax before the issuance of notice u/s 148 of the Act. iv. That having regard to the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of learned Assessing Officer in making aggregate addition of Rs.2,80,000/- treated as income of the appellant u/s 68 of the Act. v. That having regard to the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of learned Assessing Officer in making addition or Rs.62,018/- on account of commission income. vi. That in any case and in any view of the matter learned Commissioner of Income Tax (Appeals) has erred in law and on facts in not quashing the impugned assessment order passed by learned Assessing Officer and in not deleting various additions/disallowances made by learned Assessing Officer as the assessment order is not sustainable on various legal and factual grounds and more so by recording incorrect facts and finding and without giving any opportunity of cross examination of the persons on whose statement impugned addition has been made. vii. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.
3. In the appeal, the assessee filed application on 02/03/2014 under Rule 11 of the ITAT Rules, 1963 for filing additional ground in view of the 3 ITA Nos. 78 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 judgment of the Hon’ble Supreme Court in the case of National Thermal Power Corporation reported in 229 ITR 383(SC) as follows: “That the mandatory notice u/s 148 was not served upon the assessee company much less in according to law and therefore learned Assessing Officer did not presume jurisdiction to frame the impugned assessment order and thereafter the impugned assessment is bad in law.”
4. The application for admission of additional ground of the assessee was allowed by the Tribunal which is recorded in the order sheet entry dated 21/07/2015.
AY:1999-00 5. At the time of hearing, before us, none represented on behalf of the Revenue. However, the learned Authorized Representative of the assessee submitted that the assessee has already filed paper book containing all documents and materials and the legal grounds raised by the assessee against the reassessment proceedings was duly covered in the favour of the assessee by the decision of the Tribunal as well as the decision of the Jurisdictional High Court and the case being very old, he requested to hear the appeal ex-party, the Revenue.
6. We have heard the submission of the learned Authorized Representative of the assessee and find that this appeal is very old and on the earlier occasion the adjournment was granted on the request of the Department, despite, none represented on behalf of the Revenue. We also find that the assessee has filed copy of the relevant documents in the form of paper book. In view of above facts and circumstances and looking to the issue involved in the appeal, we have heard the appeal ex- party, qua the Revenue.
7. The facts in brief of the case are that on the basis of the information received from the Investigation Wing of the Income Tax 4 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 Department, that the assessee was engaged in providing of accommodation entries for monetary benefit, the Assessing Officer recorded reasons for reopening of the assessment and issued notice under section 148 of the Income-tax Act, 1961 (in short ‘the Act’). The Assessing Officer claimed that this notice was duly served on the assessee company on 31/03/2006. In response, the assessee vide letter dated 21/11/2006, stated that the original return of income filed by the assessee under section 139 of the Act might be treated as return in compliance to notice under section 148 of the Act. The Assessing Officer noted that original return of income was filed on 30/11/1999 declaring income of Rs.10,080/-. During assessment proceedings, the Assessing Officer observed from the information received from the Investigation Wing of the Income Tax Department that Sh. Govind Ram in his statement dated 13/05/2005, admitted of having opened the bank accounts in the name of various concerns and bank accounts of those concernes were used as entry operator for providing accommodation entries. Sh. Govind Ram, further admitted that Sh. Vinesh Kumar and Sh. Sharique Kamal were working under him in various capacity for which they were paid monthly remuneration. The Assessing Officer further observed that Sh. Sharique Kamal and Sh. Vinesh Kumar, both the Directors of the assessee company, in their statement dated 13/05/2005, admitted of working under the direction of Sh. Govind Ram and signed the Bank cheques and documents of various concerns including the assessee company. The Assessing Officer collected copy of bank statements of the assessee company from the banks and asked the assessee to provide narration of each debit and credit entry of the bank statement. The assessee provided the detail of share application money of Rs.2,80,000/-received during the year from eight persons, having details as under:
5 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 Sl. No. Name of the Party Amount 1. Sh. Brij Murari Pandey Rs.16,000/- 2. Sh. Davender Sabat Rs.18,000/- 3. Sh. Jagjit Malik Rs.70,000/- 4. Sh. Pawan Chawla Rs.24,000/- 5. Arun Bala Rs.70,000/- 6. Harsh Kumar Rs.12,000/- 7. Geeta Rs.60,000/- 8. Assem Pushkarma Rs.10,000/- Total Rs.2,80,000/- 7.1 According to the Assessing Officer notice issued under section 133(6) of the Act to share applicant at serial Nos. 1 and 2 above returned undelivered and in case of share Applicant No. 3 to 8, neither notices received back undelivered, nor any response was received from those persons and, therefore, the assessee was called upon to show cause why the amount of Rs.2,80,000/- shown to have received may not be treated as unexplained credit under Section 68 of the Act. According to the Assessing Officer, the assessee was engaged in providing accommodation entry and, therefore, commission at the rate of 2% on the total credit balance of Rs.31,00,899/- appearing in the records of the assessee, was estimated, which worked out Rs.62,018/-. According to the Assessing Officer, no reply was furnished by the assessee, and therefore he made the additions accordingly. 7.2 Before the learned Commissioner of Income-tax (Appeals), the assessee challenged the reassessment proceedings initiated by the Assessing Officer on the ground that the Assessing Officer had no reasons to believe that the income has escaped assessment. The assessee submitted that there was no material on the basis of which, the belief that income escaped, could be formed. He further submitted that belief of the Assessing Officer should not be product of imagination or speculation. The assessee also took the ground that the assessment was framed without disposing off the objection of the assessee against 6 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 reasons for reopening and the assessee was not provided opportunity to cross-examine the persons, whose statements have been referred by the Assessing Officer. The learned Commissioner of Income-tax (Appeals), however, rejected the legal grounds of the assessee and upheld the reassessment proceedings with following observations: “3.1. I have considered the facts of the case, order of the AO and submissions made by the Id. AR appearing on behalf of the appellant. The notice u/s 148 was issued in the present case on 30.03.2006. As per the provisions of Section 149 of the Income Tax Act, the notice u/s 148 can be issued within a period of four / six years from the end of the relevant Assessment Year. In the present case, notice was issued within a period of six years from the end of the relevant Assessment Year. Hence, it is seen that the notice was issued, well within the time and the same was not barred by limitation. 3.2 Regarding, the reason to believe, it is seen that in this case the reasons to believe was formed by the Assessing Officer on the specific information received from the Investigation Wing of the Department. The said information was not general or vague, as alleged by the appellant, but was basis of specific information, pertaining to the transactions made by the appellant. In the said information date of the cheque, amount of cheque and name of the person issuing the cheque, etc , in respect of the accommodation entry received by the appellant, were duly mentioned two persons, namely, Sh. Sharique Kamal and Sh. Vinesh Kumar, who were working for the appellant admitted in their statement on oath that the appellant was indulging in accommodation entries. These facts were sufficient for forming belief by the Assessing Officer. Any subsequent investigation could be done only after initiating the proceeding as per the provisions of the I.T. Act. On receipt of this information from the Investigation Wing of the Income-tax Department, the AO examined the facts of the case and applied his mind before initiating the reassessment proceedings. The contention of the appellant that reopening was done on the direction of the Investigation Wing is not true. The Directorate of Investigation simply forwarded the information which was containing modus operandi and statements of the persons who were involved in providing accommodation entries including statements of Mr. Sharique Kamal and Mr. Vinesh Kumar. On receipt of the information, the AO independently analyzed the same and thereafter 7 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 formed the reason to believe that income had escaped assessment which was put into writing in the form of reason to believe. Therefore, there is no force in the argument of the appellant that reopening was done on the behest of Directorate of Investigation. 3.3. The AO has followed all the procedures laid down in the Act and recorded reasons which had live link with the material in his possession. Further, the appellant has not pointed out any specific infirmity in the action of the Assessing Officer, as far as reopening of Assessment as per the provisions of section 147 is concerned. Hence, it is clear that the reason to believe recorded by the Assessing Officer, were having rational nexus / relevant to the facts of the appellant and the reopening was done by the A.O. as per the provisions of the I.T. Act. 3.4. The copy of the reasons recorded by the AO was provided to the A.R. of the appellant during the course of assessment proceedings. The reopening of the assessment proceedings is as per the provisions of Law and the AO has followed all the procedures and guidelines laid down by Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. \/s. Income Tax Officer(2003) 259 ITR 19/(2002) 125 Taxman 963 (SC) for supplying of the reasons recorded and disposing off of the objections raised by the appellant. 3.5. In the case of Highgain Finvest Pvt. Ltd. 304 ITR 325 (Del), Jurisdictional High Court of Delhi'xlpheidthe reopening of the assessment when specific information is available with the assessing officer. The fact of this case is also similar to the facts of the above case of Jurisdictional High Court. In view of the above, it is clear that the proceedings u/s 147 of the IT Act have been validly initiated in the case of the appellant. The facts of the case laws relied upon by the appellant are different with that of the appellant’s case, therefore, the findings of those judgements are not applicable in the case of appellant. Therefore, ground nos.1, 2, 3 & 7 are rejected.”
Before us, the learned Authorized Representative of the assessee argued in support of ground No. 1 that the Assessing Officer has not applied mind while recording reasons for reopening, which is evident from the copy of reasons recorded available at page 39 of the 8 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 assessee’s paper book. The learned Authorized Representative submitted that in the reasons recorded, the Assessing Officer has even not mentioned the material, on which, he relied for reopening of the assessment except mentioning the fact that information was received from the Investigation Wing. He further submitted that Assessing Officer even did not verify the fact that the assessee had already filed return of income for the year under consideration and he simply mentioned that assessee has not filed return of income. He further submitted that the Assessing Officer has not even mentioned the amount of income escaped in the reasons recorded. According to him, thus it was evident that the Assessing Officer has not applied his mind while reopening the assessment and which renders the assessment proceeding as bad in law. Accordingly he prayed that reassessment proceeding might be held invalid in the case of the assessee. In support of his contention, he relied on the decision of the Hon’ble jurisdictional High Court in the case of principal Commissioner of Income Tax Vs. G & G Pharma India Ltd in ITA 545/2015.
We have heard the submission of the learned Authorized Representative of the assessee and perused the relevant material on record. In the decisions cited by the learned Authorized Representative in the case of M/s G & G Pharma India Ltd (supra), the Hon’ble High Court concluded that when basic requirement that the Assessing Officer must apply his mind to the materials on record in order to have reasons to believe that income of the assessee escaped assessment was missing and therefore reopening of the assessment was not justified. The relevant paragraph of the decision of the Hon’ble High Court are reproduced 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 9 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 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.
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.”
10 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 10. When we advert to the instant case, that the reasons recorded by the Assessing Officer for reopening of the assessment, are available on page 39 of the paper book, which we are reproducing as under: “Reasons for issue of notice u/s 148 “A report from DIT(Inv.) was received stating that the company has received accommodation entries from the group of Sh. Hari Om Bansal Govind Ram Saini/Mukesh Gupta. A perusal of I.T. Return, it is revealed that the assessee company has only taken PAN of this ward but has not filed any IT return for any of the assessment years till now. The income escaped assessment on account of accommodation entries is likely to exceed over Rs. 1 lakh. In view of the above facts and the report received from DIT(Inv.), New Delhi, I have the reason to believe that a sum of Rs.1 lakhs has not been disclosed by the assessee company as its income, which has escaped assessment so the same is to be sought to the tax net u/s 147/148 of the Income Tax Act, 1961.”
From the above reasons recorded, we find: (i) that the Assessing Officer has not even mentioned the letter number and date of the letter of Director of Income-tax (Investigation), which constituted the information on the basis of which, he reopened the assessment. (ii) that the Assessing Officer has not mentioned name of persons who gave statement that the assessee was engaged in providing accommodation entry (iii) that the Assessing Officer has not verified that the assessee had already filed return of income for the year under consideration. (iv) that the Assessing Officer was not sure of the amount of income escaped and thus he has not even mentioned amount of income escaped , which is evident from the sentence in the reasons recorded that escaped income on account of accommodation entry was likely to exceed Rs. 1 lakh 11 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 (v) the Assessing Officer has not even mentioned the nature of income escaped i.e loans or share application money or share capital etc.
In view of above, it is manifested that the Assessing Officer has not applied his mind to the information and he has recorded the reasons in a mechanical manner, which are vague and non-specific. It is settled law that the action of reopening has to be judged only on the basis of the reasons recorded and no extraneous material can be supplemented to see the validity of the reopening. Though the learned Commissioner of Income Tax, subsequently brought on record all the details leading to reopening of the assessment, however, but as held by the Hon’ble Jurisdictional High Court in above decision that production of materials before the learned Commissioner of Income-tax (Appeals) during hearing was in the nature of a post-mortem exercise and taken place after the event of reopening the assessment. The Hon’ble Court has held that while the Commissioner of Income Tax might have proceeded on the basis that reopening of the assessment was valid, that did not satisfy the requirement of law that prior to the reopening of the assessment, the AO has to apply his mind to the material to conclude that he has reason to believe that income of the assessee escaped assessment and unless the basic jurisdictional requirement is not satisfied, a post-mortem exercise of analysing material produced subsequent to the reopening will not rescue an inherently defective reopening orders from invalidity. 13 In view of above, respectfully following the above decision of the Hon’ble High Court, we hold the reassessment proceedings in the case as invalid. Since reassessment proceedings have been held by us as invalid, the other grounds of the appeal as well as additional ground of 12 ITA Nos. 78 & 2823/Del/2010 AYs: 1999-2000 & 2001-02 the assessee are rendered merely academic, and hence we are not adjudicating upon those grounds of the assessee.
In the result, appeal of the assessee is allowed.
ITA No. 2823/Del/2010 for AY: 2001-02 15. Since the facts and circumstances of the case in are identical to the facts and circumstances of the case in ITA No. 78/Del/2010, we hold the reassessment proceeding in assessment year 2001-02 as invalid and accordingly allow the appeal in ITA No. 2823/Del/2010 of the assessee. 16. In the result, both the appeals of the assessee are allowed. The decision is pronounced in the open court on 19th October, 2016.