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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’, NEW DELHI Before Sh. N. K. Saini, AM And Smt. Beena Pillai, JM Asstt. Year : 2003-04 M/s Narendra Polychem (P) Ltd., Vs Income Tax Officer, Formerly known as M/s Narendra Ward-13(1), Cold Storage (P) Ltd., 107, New Delhi Patparganj Village, Delhi-110091 (APPELLANT) (RESPONDENT) PAN No. AABCN8105D Assessee by : Dr. Rakesh Gupta & Sh. Somil Agarwal, Advs. Revenue by : Sh. P. Dam Kanunjna, Sr. DR Date of Hearing : 31.05.2016 Date of Pronouncement : 03.06.2016 ORDER Per N. K. Saini, AM:
This is an appeal by the assessee against the order dated 19.08.2013 of ld. CIT(A)-XVI, Delhi.
Following grounds have been raised in this appeal:
“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned assessment order and that too without assuming jurisdiction as per law and without complying with the mandatory conditions as envisaged u/s 147 to 151 of Income Tax Act, 1961 and without recording valid reasons in the Narendra Polychem (P) Ltd. eyes of law and without taking requisite approval as per law.
2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making an aggregate addition of Rs.7,50,000/- on account of share capital received from Sh. Vivek Aggarwal and M/s Globe Tech Solutions (P) Ltd. by treating it as unexplained cash credit u/s 68 of Income Tax Act, 1961.
That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs. 15,000/- (2% of Rs.7,50,000/-) on account of alleged commission paid.
4. That in any case and in any view of the matter, impugned addition and impugned assessment order are bad in law, illegal, unjustified, barred by limitation, contrary to facts & law and based upon recording of incorrect facts and finding, without giving adequate opportunity of hearing, in violation of principles of natural justice and the same are not sustainable on various legal and factual grounds.
5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in charging interest 234B, 234C and 234D of the Income Tax Act, 1961.
Narendra Polychem (P) Ltd. 6. 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. Ground No. 1 is legal ground vide which the assessee has challenged the validity of the reassessment proceedings u/s 147 of the Income Tax Act, 1971 (hereinafter referred to as the Act).
Facts of the case in brief are that the assessee filed the return of income declaring a loss of Rs.7,817/- on 10.11.2003 which was processed u/s 143(1) of the Act. The AO subsequently received information from the Investigation Wing of the Income Tax Department that the assessee was one of the beneficiaries of accommodation entries received from certain established entry operators identified by the Investigation Wing of the Department and that the assessee was shown to have received accommodation entry in the garb of share application money/share capital. The AO initiated the reassessment proceedings u/s 147 of the Act and served the notice dated 30.03.2010 u/s 148 of the Act requiring the assessee to file the return of income within the time allowed in the said notice. The assessee vide a letter dated 08.06.2010 enclosing therewith copy of the acknowledgement of return Narendra Polychem (P) Ltd. filed u/s 139(1) of the Act alongwith photo copy of the Balance sheet, stated that the return of income for the assessment year 2003-04 has been filed on 10.11.2003 and requested for a copy of reasons recorded u/s 148(2) of the Act. The AO did not find merit in the submissions of the assessee and framed the assessment u/s 143(3)/147 of the Act by making an addition of Rs.7,65,000/- on account of share application money of Rs.7,50,000/- and commission of Rs.15,000/- paid out of undisclosed source.
Being aggrieved the assessee carried the matter to the ld. CIT(A) who did not find merit in the submissions of the assessee on legal issue pertaining to the issuance of notice u/s 148 of the Act dated 30.03.2010 by observing in paras 4.3 & 4.4 of the impugned order as under: “4.3 The submission of the AR is that no addition can be made as the share capital has not emanated from the coffers of the assessee company, as there was no income to the assessee company before it came in to existence. That the amount received before the beginning of the previous year cannot be brought to tax. The above submission of the A/R is without any merit, because the share application moneys were received by during the previous year relevant to AY 2003-04. Further, sufficiency of reasons for forming the belief is not a requirement. Hon'ble Supreme Court in the case of ACIT vs. Rajesh Narendra Polychem (P) Ltd. Jhaveri Stock Brokers P. Ltd. reported in 291 ITR 500 has held when the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, the law does not require that Assessing Officer should have finally ascertained the fact of legal evidence or conclusion. The material required for conclusively proving the escapement of income is not concerned at the stage of reopening. Hon'ble Delhi High Court in the case of A.G. Holdings (P) Ltd. vs. ITO in W.P. (C) 8031/2011 and in the case of CIT vs. Nova Promoters & Finlease (P) Ltd (2012) 18 Taxmann.com 217 (Delhi) has held that at the time of issuing the notice to reopen the assessment, the Assessing Officer is only expected to form a prima facie or tentative belief that income chargeable to tax had escaped assessment. Whether the addition has to be made or not is a matter to be decided on merits in the course of the reassessment proceeding. The information received from the investigation wing was specific. The information was sufficient for making a belief that income amounting to Rs. 7,50,000/- chargeable to tax has escaped assessment within the meaning of section 147 of the Act and the Assessing Officer was justified in initiating the proceedings for reassessment by issuing notice u/s 148 after recording the reasons as required by law. 4.4 Further submission of the appellant is that proceedings have been initiated by the A.O blindly on the basis of information from investigation wing without his own satisfaction. The above contention of the appellant is without any merit.
Narendra Polychem (P) Ltd. From the reasons recorded it is evident that information has been received from investigation wing of the department and proceeding have been initiated u/s 147 by the A.O. after recording the requisite satisfaction. It has been held in plethora of decisions of various judicial authorities that proceeding initiated u/s 147 on the basis of information received from investigation wing, CIB wing, Enforcement Directorate are valid. Reliance is placed on ITO Vs Gurinder Kaur (ITAT, Del) 102 ITD 189, Sterlite Industries (India) Ltd. Vs ACIT (Mad) 302 ITR 275, AGR Investments Ltd. Vs Addl. CIT & Anr (Del) 333 ITR 146, Shalimar Buildcon (P) Ltd. Vs. ITO (ITAT, Jaipur) 136 TTJ 701. In view of the above, the submission of the appellant is not sustainable.”
Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the AO alleged in the reasons recorded that the persons from whom the amount was received were entry operator who provided the entry to the assessee after receiving the amount in cash. It was contended that the AO did not apply his own mind and acted on the information of other persons and it was not brought on record, that the persons from whom loans were received were the entry operator and no report of the investigation was confronted to the assessee, therefore, the assessment re- opened under presumption by the A.O. was not tenable. The reliance was placed on the order dated 8.10.2015 of the Narendra Polychem (P) Ltd. Hon’ble Jurisdictional High Court in in the case of Principal Commissioner of Income-tax vs. G & G Pharma India Ltd. copy of the said order was furnished which is placed on the record. The reliance was also placed on the following case laws: � M/s Banke Bihari Properties Pvt. Ltd. Vs ITO, Ward-4(1), ITA No. 5128/Del/2015 order dated 22.04.2016 � Dhanuka Agritech Ltd. Vs ACIT, Circle-10(1), ITA No. 1003/Del/2014 order dated 11.05.2016 � Vasundra Promoters Pvt. Ltd. Vs ACIT, CC-23, ITA No. 4014/Del/2014 order dated 28.04.2016 7. In his rival submissions the ld. DR strongly supported the orders of the authorities below and further submitted that the AO received the specific information from the Investigation Wing, on the basis of which the assessment was reopened, therefore, the ld. CIT(A) rightly upheld the action of the AO for reopening the assessment u/s 147 of the Act.
We have considered the submissions of both the parties and carefully gone through the material available on the record. To resolve the present controversy, it is relevant to consider and discuss the reasons recorded by the AO for reopening the assessment u/s 147 of the Act. The AO vide Narendra Polychem (P) Ltd. letter dated 02.07.2010 (copy of which is placed at page nos. 12 & 13 of the assessee’s paper book) communicated to the assessee that the reasons recorded for issuing notice u/s 148 of the Act were as under: “Information has been received from the Investigation Wing of the Income Tax Department that the above named assessee is a beneficiary of accommodation entries received from certain established entry operators identified by the Wing during the period relevant to F.Y. 2002-03. A comprehensive investigation was carried out by the Investigation Wing for identification of entry operators engaged in the business of money laundering for the beneficiaries and on the basis of investigation carried out and evidences collected, a report has been forwarded. I have perused the information contained in the report and the evidences gathered. The report provides details of the modus oparandi of the ‘money laundering scam’and explain how the unaccounted money of the beneficiaries are ploughed back in its books of account in various forms including the form of bogus share capital/capital gains etc after routing the same through the bank accounts of the entry operators. Entry operators were identified after thorough investigation on the basis of definitive analysis of their identity, creditworthiness and the source of the money ultimately received by the beneficiaries. These entry operators are found to be mostly absconding/non-complying after the unearthing of the ‘Money Laundering Scam’ leaving the said money at the disposal of the beneficiaries without any associated cost or Narendra Polychem (P) Ltd. liability. In the instant case, the assessee is found to be the beneficiary of accommodation entry from such entry operators as per the following specific details of transaction:
Benefici Beneficiary Value of Instrum Date on Name of Bank Branch of A/C ary Bank entry ent no. which account from entry entry Bank Branch taken by entry taken holder of which giving giving Name which entry entry bank account entry giving given taken account SBI Neelam 150,000 382034 25-Nov-02 Vivek Federal Karolbagh 1468 Bata Road, Aggarwal Bank Faridabad SBI Neelam 600,000 940690 25-Feb-03 Globe KVB Karolbagh CA 332 Bata Road, Tech Faridabad Solutions Pvt. Ltd. The assessee has received unexplained sums from the entry operators as per the above details as per information available with the undersigned. As explained above, the identity, creditworthiness and genuineness of transactions with the persons found to be entry operators cannot be established. The Assessing Officer I therefore have reasons to believe that on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment for above assessment year, the income chargeable to tax to the extent of accommodation entry mentioned above, has escaped assessment within the meaning of Section 147 of the Act.
Since four years has since expired from the end of the relevant years, and no scrutiny assessment was completed in the case of the assessee for the said assessment year, the reasons recorded above for the purpose of reopening of assessment is put up for kind satisfaction of Addl. CIT, Range-13, Narendra Polychem (P) Ltd. New Delhi in terms of the provision to Section 151 of the Act. In view of the above, the Assessing Officer has the reasons to believe, that income of the assessee has escaped assessment during the year under consideration within the meaning of Section 147 of the Act and notice was issued after taking approval from the Addl. CIT, Range-13, New Delhi.”
From the above reasons recorded and as communicated to the assessee by the AO, it is crystal clear that the AO re- opened the assessment on the basis of information of other persons because he himself admitted that it came to his knowledge that the persons from whom the amount was received were entry operator and have provided entries to the assessee, after receiving amount in cash from the assessee. However, nothing was brought on record that the assessee paid cash to the persons from whom the loans were taken and these were entry operator.
On a similar issue, their lordships of the Hon’ble Jurisdictional High Court in the case of Principal Commissioner of Income-tax vs. G. & G. Pharma India Ltd. (supra) observed in paras 12 & 13 of the order dated 08.10.2015 as under:
Narendra Polychem (P) Ltd. “12. In the present case, after setting off four entries, stated to have been received by the Assessee on a single date i.e. 10th February, 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 Narendra Polychem (P) Ltd. 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 analyzing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity.”
In the present case also the AO in the reasons recorded mentioned that it had come to his knowledge that the persons from whom amount was received were entry operator and provided the entries to the assessee after receiving the amount in cash, however, nothing was brought on record that how and in what manner the persons from whom the assessee received the loans were entry operator and that as to how the cash was paid by the assessee. In fact the aforesaid conclusion of the A.O. is unhelpful in Narendra Polychem (P) Ltd. understanding as to whether the AO applied his mind to the material, particularly when he did not describe how and in what manner it came to his knowledge that the assessee received the accommodation entries. We, therefore, by keeping in view the ratio laid down by the Hon’ble Jurisdictional High Court in the aforesaid referred to case of Principal Commissioner of Income-tax vs. G & G Pharma India Ltd., are of the view that the reopening done by the AO u/s 147 of the Act was not valid and accordingly the subsequent assessment framed by the AO was void-ab-initio and therefore the same is quashed. Since, we have quashed the reassessment order of the A.O., therefore no findings are given on another grounds raised by the assessee on merit.
In the result, appeal of the assessee is allowed. (Order Pronounced in the Court on 03/06/2016)