SH. SANJAY GUPTA,NEW DELHI vs. ITO, NEW DELHI

Date of Hearing : 06-10-2016 Date of Order : 17-10-2016 ORDER

PER H.S. SIDHU : JM

“1. That the order passed uls 143(3) I 148 of the Income Tax Act, 1961, on 24.03.2014 by the Assessing Officer as upheld by the Ld. CIT(A), are perverse to the law and to the facts of the case, because of invoking provisions of law uls 147 of the Act, only upon the borrowed information without the availability and verification of any relevant material, drawing his independent satisfaction at the time of recording reasons.

2. That the provisions of law invoked uls 147 is further not legal as tenable because the Assessing Officer did not possess any material on his record which could ever confirm that the appellant has ever bogus purchases from Shri Bankey Bihari Trading Co. to the tune of Rs. 9,16 ,6 51/-.

3. That the order passed by the Assessing Officer and upheld by the Ld. CIT(A) were also wrong and not tenable, because of getting and granting the approval from the concerned competent authority in a mechanical manner uls 151 of the LT. Act, 1961.

4. That on the facts and circumstances of the case, the additions made of Rs. 916651/- on account of the alleged purchase of bogus material by the Assessing Officer were also wrong as not tenable as the Assessing Officer has already accepted the books of accounts of the appellant, opening / closing stock in the beginning and end of the Financial Year while finalizing the Assessment proceedings, which the CIT(A) has not appreciated while confirming the said additions.

5. That the additions made of Rs. 916651/- on the alleged bogus purchases is further wrong because the Assessing Officer has not invoked the provisions of law contained uls 145 of the Income Tax Act, 1961, prior to make the illegal and impugned additions of Rs. 916651/-.

6. That the Assessing Officer has failed to appreciate while making the illegal and impugned additions made of Rs. 916651/-, that he has already accepted the opening I closing stocks in the beginning and end of the Financial Year and in the subsequent year also, besides the acceptance of his books of accounts.

7. That the additions made of Rs. 916651/-, as confirmed by the Ld. CIT(A), were further wrong because the appellant has already produced cogent evidence with regards to the purchase of material and its payment thereof through Alc payee cheque and for its rebuttal thereof, the other party weas not summoned. 2

8. That the Assessing Officer further failed to appreciate, that no adverse inference could ever be drawn only on the basis of statement recorded, therefore, no additions if any could be made unless supported with the cogent evidences I material which the Assessing Officer never collected or ever placed upon records.

9. That the adverse inference drawn by the Assessing Officer while making additions of Rs. 9,16,651/- in the income of the appellant is entirely based upon his mere presumption and guesswork, therefore, not tenable.

10. That the appellant was not afforded proper and reasonable opportunity of the Assessing Officer prior to make illegal and impugned additions of Rs. 916651/- in his income while finalizing the Assessment proceedings.

11. That the initiation of penalty proceedings uls 271 (1)( c) of the Act, is also illegal, as such not tenable.

12. That charging of interest uls 234B Income Tax Act, 1961, is also illegal as against the law and to the facts of the case.

13. That the appellant reserves his rights to raise additional grounds of appeal at any time even during the course of hearing of this appeal.”

2. The brief facts of the case are that assessee filed his return on 21.9.2006 by declaring income of Rs. 2,82,445/-. The same was processed u/s. 143(1) and no further notice u/s. 143(2) was issued for the purposes of scrutinizing the return. Later on, a notice u/s. 148 was issued to the assessee on 28.3.2013 asking him to file a return of his income. In response to the same, the assessee filed a letter dated 18.4.2013 filing therewith a copy of the return relevant for the asstt. Year under consideration earlier filed on 21.9.2006 and requested that the same may be treated as a return filed in response to notice u/s. 148 of the Act. Thereafter, assessee’s AR attended the hearing and the AO made an addition of Rs.9,16,651/- and assessed the income of the assessee at Rs. 11,45,097/- u/s. 143(3)/148 of the I.T. Act, 1961 on 24.3.2014.

3. Aggrieved by the order of the AO, the assessee came in appeal before the learned CIT(A), who vide impugned order dated 18.3.2016 has dismissed the appeal of the assessee.

4. Against the order of the Ld. CIT(A), assessee is in appeal before the Tribunal.

'On last hearing of the case, you provided us a list which you claim tl as list of accommodation entries obtained from Shri Rakesh Gupta and Shri Vishesh Gupta, on the basis of which you have reopended our case.

On carefully going through the list, I found that it is merely an incomplete detail of sales of the parties concerned. Even date of transaction is not mentioned on it. I am much surprised that you have not given me even the dates of cash transactions as claimed by you. In the statement, there is no calculation of any commission or net payment made in cash as claimed in the affidavit or other documents. You have not given even a single documents showing the exact cash transaction amount with date as claimed by you.

In this connection, I am enclosing herewith a copy of the order passed by the special bench of ITA T, based on the similar search operations and similar case facts. At assessment stage, huge demands were created by the AO, which were deleted by the CIT(Appeals) due to no evidences and no cross verification of the evidence against the assessee. The revenue filed appeal against the appeal orders before ITAT and special bench of ITAT upheld the CIT(Appeals) order on the same ground of no evidence of cash transaction and not providing opportunity of cross examination of the evidence being used against the assessee.

You are requested to kindly go through this order carefully and either provide us the evidence of cash transaction and opportunity to' cross examine Mr.Rakesh Gupta and Mr. Vishesh Gupta or decide the case in our favour."

9. In view of above facts and circumstances of the case, I find considerable cogency in the contention of the ld. Counsel of the assessee that the facts and circumstances of the present case are similar to that of Unique Metal Industries (supra) and the legal issue of reopening in the Assessee’s Appeal is squarely covered by the Order dated 28.10.2015 of this Bench passed in the case of Unique MetaI Industries vs. ITO in dated 28.10.2015 wherein, the Tribunal has adjudicated the legal issue at page no. 9 to 23 vide para no. 7 to 13 as under:-

“7. I have perused the assessment order, order passed by the learned CIT(A) as well as the paper book. It will be relevant to refer to the reasons recorded by the Assessing Officer and the approval of the Joint Commissioner of Income Tax which reads as under:-

“Reasons for the belief that the income has escaped assessment in the case of M/s Unique Metal Ind for the assessment year 2006-07

A letter bearing F.No. Addl. CIT/(Hq)/(Coord.)/Accommodation entry/2012-13/15016 dated 26.03.2013 was received from the Office of the Chief Commissioner of I. Tax, Delhi-I, New Delhi herein forwarding letter bearing F. No. CIT©-II/2012-13/3898 dated 19.3.2013 received from the Commissioner of I. Tax, Central-II, New Delhi along with a CD containing the details of accommodation entries provided by Sh. Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet Jain & Sh. Vaibhav Jain and direct this office to take necessary action as per section 148 in respect of entries pertaining to A.Y. 2006-07, which is time barring on 31.03.2013.

The information provided by the CIT, Central-II, New Delhi vide his letter dated 19.03.2013 reads as under:-

“Kindly find enclosed herewith letter dated 13.03.2013 of ACIT, Central Circle-10 duly forwarded by the Addl. CIT, Central Range- IV, along with its enclosures on the subject mentioned above.

3. The list of accommodation entry recipients has been obtained from Sh. Rakesh Gupta and Sh. Vishesh Gupta. Hard copy of the list is enclosed as Annexure A, duly signed by Sh. 8

Vishesh Gupta. The list gives the name of the firm which has provided the accommodation entry along with the name and address of recipients of accommodation entry.

4. Sh. Naveen Jain & Sh. Vsaibhav Jain has provided accommodation entry through thirty-seven paper entities. The list of the firms giving accommodation entry is enclosed as annexure- B. The list of accommodation entry recipients, has been obtained from Sh. Navneet Jain & Sh. Vaibhav Jain. It does not give year wise bifurcation. Hard copy of the lost is enclosed as annexure-C, duly signed by Sh. Vaibhav Jain. Thus, the firms mention in the list ‘B’ have provided accommodation entries to the firms mentioned in list ‘C’.

5. The soft copy of the information in respect to annexure A, B & C is also enclosed.

6. The information of accommodation entry includes A.Y. 2006- 07 also, which is a time barring year for taking action u/s 148.

7. The information is forwarded to you for early dissemination to various field officers in Delhi (Soft copy also enclosed).

On examining the list of accommodation entries provided by Sh. Rakesh Gupta & Sh. Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain pertaining to A.Y. 2006-07, it is noted that the following accommodation entries have been taken by the assessee namely M/s Unique Metal Industries:-

Sl. Accommodation Name of party to whom Amount of No. entry provided by accommodation entry is Accommodation provided entry 1 Shree Shyam M/s Unique Metal Industries Rs.2,44,399/- Trading Co. 2 Vishnu Trading Co. M/s Unique Metal Industries Rs.8,12,542/- 3 Shree BankeyBihari M/s Unique Metal Industries Rs.3,28,368/-

Total amount of entries= Rs.13,85,309/- Since Sh. Rakeh Gupta & Sh. Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain during the course of assessment proceedings u/s 153A of I. Tax Act have admitted that they have given accommodation entries to the parties whose lists have been provided by them to the ACIT, Central Circle-10, New Delhi, therefore, it is fair to conclude that M/s Unique Metal Industries whose name is appearing in the said list, has taken accommodation entries from Sh. Rakeh Gupta & Sh. Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain pertaining to A.Y. 2006-07.

In view of the above, I have reasons to believe that income chargeable to tax of M/s Unique Metal Industries amounting to Rs.13,85,309/-for the F.Y. 2005-06 relevant to A.Y. 2006-07 has escaped assessment and it is a fit case for initiation of proceedings u/s 147 of the Act.

Proposal in the prescribed form for the A.Y. 2006-07 (F.Y. 2005-06) is submitted herewith for kind consideration and necessary approval u/s 2006-07 (F.Y. 2005-06) is submitted herewith for kind consideration and necessary approval u/s 151(2) of the I. Tax Act, 1961 as the same is getting barred by limitation on 31/3/2013.

If approved, notice u/s 148 of the act may be issued.

Sd/- 28.3.2013 (PawankumarVashist) Income Tax Officer Ward-39(3), New Delhi Joint CIT, Range-39, N.Delhi For the reasons recorded by the Ao, ITO Ward – 39(3), it is a fit case for issue of notice u/s 148 of the I.T. Sct, 1961. Accordingly necessary approval for reopening the above case for A.Y. 2006-07 is hereby given s per the provision of section 151(2) of I.T. Act, 1961.

ITO, Ward 39(3)

Sd/- 28.3.2013 (Vijay BabuVasanta) Jt. Commission of Income Tax Range-39, New Delhi” 8. On going through the above reasons it is evident that this assessment has been reopened on the basis of the letter received from the ld. CIT, Central-2, New Delhi with the direction to take necessary action as per section 148 of the Act. As per this, accommodation entries were obtained by various persons from Sh. Rakesh Gupta and Sh. Vishesh Gupta as well as Sh. Navneet Jain and Sh. Vaibhav Jain. Copy of this list was forwarded in a CD to the Assessing Officer. Thus this list contained the name of the assessee. The Assessing Officer reopened the assessment on the basis of this information. The basis given by the Assessing Officer in the reasons is that these persons have admitted that they have given accommodation entries to the parties whose lists have been provided by them. From the above facts it is apparent that the Assessing Officer at that point of time when he recorded the reasons was not having the copy of the statement or any other material in which these people have alleged to have provided accommodation entries to the assessee. This position gets also corroborated from the facts stated by the Assessing Officer himself in the reassessment order in para 3 page 5 which read as under:-

“Here it is pertinent to mention that in the intervening period, this office had conversations with the ACIT, Central Circle-10, New Delhi from whom vide this office’s letter dated 23.07.2013, 02.09.2013, 14.10.2013, 06.11.2013, 22.11.2013, 09.12.2013 & 24.12.2013 and vide Joint CIT, Range-39, New Delhi’s letter dated 16.12.2013, the following details/documents were sought:- i) Copies of the statements recorded of Sh. Rakeh Gupta & Sh. Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain in search/post search/assessment proceedings. ii) Soft copies of the tatements recorded of Sh. Rakeh Gupta & Sh. Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain in search/post search/assessment proceedings.\ iii) Hard copy of assessment orders passed in these cases for A.Y. 2006-7 iv) Soft copy of assessment orders passed in these cases for A.Y. 2006-07 v) Any other detail/document you may deem fit that need to be confronted with the parties whose cases have been reopened u/s 148 of I. Tax Act.

10. The above observation of the Assessing Officer also shows that it was letter dated 20.12.2013 received by him on 27.12.2013 on the basis of which the Assessing Officer could make a view that the purchase bills provided by these persons or their family members is nothing but bogus purchase bills. At the time of recording of the reasons the Assessing Officer apparently was not having any idea about the nature of the transactions entered into by the assessee. In the reasons recorded there is no mention about the nature of the transactions. As per provision of section 147 an assessment can be reopened if the Assessing Officer has reasons to believe that any income chargeable to tax has escaped assessment. The reasons to believe has to be that of the Assessing Officer and further there have to be application of mind by the Assessing Officer though the reasons to believe does not mean that the Assessing Officer should have finally ascertained the fact that income has escaped assessment but at the same time, it also means that the Assessing Officer is required to examine the facts on the basis of the information and satisfy himself that the taxable income has escaped assessment. In the present case, on going through the reasons it is quite evident that the Assessing Officer was also not aware of the nature of the accommodation entries.

In the reasons recorded he has simply mentioned the name of the party and the amount and nowhere has stated the nature of such entry. This also shows that the Assessing Officer has made no effort to look into the return of the assessee which was available with him. This fact gets further supported from the sheet appended to the reasons and quoted on page 4 of the assessment order whereby against Item no. 7, whether the assessment is proposed to be made for the first time, the Assessing Officer has stated ‘Yes’, and in Column no. 7(a), whether any voluntary return had already been filed and in Column no. 8 (b), date of filing the said return ‘NA’ has been stated. Thus this is a clear case of non-application of mind by the Assessing Officer. It may also be relevant that on page 2 of the assessment order, the Assessing Officer himself has stated that in this case the return of income for the year under consideration was filed with this ward on 27.09.2006. These facts clearly demonstrate that the return 14 was with the same ward and at the time of recording of the reasons for reopening the assessment, the Assessing Officer has not looked at the return and in a mechanical way, on receipt of the letter from the CIT, Central-2, New Delhi the assessment has been reopened. It is a settled position of law that there must be material for formation of a belief that income has escaped assessment. Further reasons referred to must disclose process of reasoning by which the Assessing Officer holds reason to believe. There must be nexus between such material and belief.

Further and most importantly the reasons referred to must show application of mind by the Assessing Officer. It is also a settled law that the validity of the initiation of the reassessment proceeding is to be judged with reference to the material available with the Assessing Officer at the point of time of the issue of notice under section 148. In the present case, as is evident from the assessment order, the Assessing Officer was having nothing except the list provided by the CIT, Central-2, New Delhi about the list of accommodation entries. Beyond that he was not having the copies of the statement of any of these persons. He was not having copy of the assessment orders and other details or document which would have enabled the Assessing Officer to apply his mind and form a belief that income has escaped assessment. In fact this information was not with the Assessing Officer till fag end of the reassessment proceedings, a fact admitted by the Assessing Officer 15 himself in the assessment order. The judgment relied upon by the learned AR also supports the case of the assessee. In the case of Sarthak Securities Pvt. Ltd. vs. ITO (2009) 329 ITR 110 the Hon’ble jurisdictional Delhi High Court has held that under the circumstances narrated hereinabove the reopening cannot be said to be a valid reopening. The Hon’ble Court has held as under:-

“In the case at hand, as is evincible, the AO was aware of the existence of four companies with whom the assessee had entered into transaction. Both the orders clearly exposit that the AO was made aware of the situation by the Investigation Wing and there is no mention that these companies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, 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 could 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 or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. The same has not been referred to while passing the order of rejection. The assessee in his objections 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. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted. Resultantly, the initiation of proceedings under s. 147 and issuance of notice under s. 148 are hereby quashed.”

“The first sentence of the reasons states that information had been received from Director of IT (Inv.) that the petitioner had introduced money amounting to Rs. 5 lacs during financial year 2002-03 as per the details given in Annexure. The said Annexure relates to a cheque received by the petitioner on 9th Oct., 2002 from SS Ltd. from the bank and the account number mentioned therein. The last sentence records that as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary. The aforesaid reasons do not satisfy the requirements of s.

escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the AO did not apply his own mind to the information and examine the basis and material of the information. The AO accepted the plea on the basis of vague information in a mechanical manner. The CIT also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the AO did not independently apply his mind to the information received from the Director of IT (Inv.) and arrive at a belief whether or not any income had escaped assessment. Company SS Ltd. had applied for and was allotted shares in the petitioner company on payment by cheque of Rs. 5 lacs. SS Ltd. is an incorporated company and the petitioner has pleaded and stated that the said company has a paid-up capital of Rs. 90 lacs. The company was incorporated on 4th Jan., 1989 and was also allotted PAN in September, 2001. The facts indicated above do not show that SS Ltd. is a non- existing and a fictitious entity/person. For the reasons stated above, writ of certiorari is issued quashing the proceedings under s. 148”

12. In the case of CIT vs. SFIL Stockbroking Co. (2010) 325 ITR 285 (Del) also the Hon’ble High Court has quashed the reopening proceedings on the ground that from the reasons it is not discernible as to whether the AO has applied his mind to the information and independently arrived at a belief that income has escaped assessment.

The Hon’ble Court has held as under:-

The first sentence of the so-called reasons recorded by the AO is mere information received from the Dy. Director of IT (Inv.). The second sentence is a direction given by the very same Dy. Director to issue a notice under s. 148 and the third sentence again comprises of a direction given by the Addl. CIT to initiate proceedings under s. 148 in respect of cases pertaining to the relevant ward. These three sentence are followed by the following sentence, which is the concluding portion of the so-called reasons :

Thus, I have sufficient information in my possession to issue notice under s. 148 in the case of M/s SFIL Stock Broking Ltd. on the basis of reasons recorded as above." From the above, it is clear that the AO referred to the information and the two directions as 'reasons' on the basis of which he was proceeding to issue notice under s.

11. Since I have quashed the reopening in the present case, the other issues have not been adjudicated upon.