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Income Tax Appellate Tribunal, DELHI BENCH “D”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI O.P. KANT
Assessee has filed this Appeal against the Order dated 08.2.2013 passed by the Ld. Commissioner of Income Tax (Appeals)-VII, New Delhi pertaining to assessment year 2003-04 on the following grounds:-
That the notice under section 148 is illegal and void
ab initio and is, therefore, liable to be quashed.
2. That there was no "reason to believe" that petitioner's income has escaped assessment which is "must" for assuming lawful jurisdiction uls 147 and such absence of reason to believe is evident from the plain
reading of the reason recorded which does not contain even this basic jurisdictional element.
3. Reopening is barred because the Assessing Officer
had not himself formed any belief as to the escapement of income but he had merely acted upon the direction of the Investigation Wing, New Delhi.
4. Notice under section 148 is illegal because the notice has been issued based upon a general statement
of one person that he was doing only name lending.
5. Notice under section 148 is illegal because
reopening is barred in view of first proviso to Section 147 as our case is governed by first proviso to section 147 and not by main section 147. In the original assessment made under section 143(3) vide assessment order dated
30/3/2006, the Assessing Officer had made detailed enquiry of the share application money received by the assessee-company.
Notice under section 148 is illegal because it has been issued merely upon change of opinion.
7. Notice is illegal because our case is governed by first proviso to section 147 and in the reason recorded to issue notice under section 148, the Assessing Officer has nowhere alleged that escapement of income has occurred
by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for assessment of that year.
Notice under section 148 is illegal in view of second
proviso to section 147 which does not allow the Assessing Officer to reassess the income involving matters which were the subject matters of any appeal. In the case in hand, the Assessing Officer while making original assessment under section 143(3) had made addition on account of share application which became subject matter of appeal before Income Tax Appellate
Tribunal and Hon'ble Delhi High Court and, therefore, the present reopening involving the same subject matter is in violation of second proviso to section 147.
That the assessment order passed by the assessing
officer is illegal and unjustified and, therefore, should be quashed.
That the action of the Assessing Officer in treating
share application money of Rs. 7,00,000/- as unexplained cash credit under section 68 is illegal and unjustified and, therefore, addition made to total income on this account ought to be deleted.
That the assessee-company craves leave to add,
modify, alter, delete or raise any other ground at the time of hearing of appeal.”
The brief facts of the case are that the original return was filed on 28.11.2003 declaring loss of Rs. 1,21,87,176/-. The return was duly processed under section 143(1)(a) of the Act on 15.3.2004.
The assessee company is engaged in the business of manufacturing of yarn. The assessment was completed under section 143(3) on 30.3.2006 at a loss of Rs. 96,87,176/- after making an addition of Rs. 25,00,000/- under section 68 of the Income Tax Act, 1961. The Ld. CIT(A) vide order dated 15.5.2007 in appeal No. 37/06-07 deleted the addition of Rs. 25,00,000/- and the said deletion was subsequently confirmed by the ITAT vide order dated 17.10.2008 and the Hon’ble High Court vide order dated 8.7.2009. Accordingly, the AO by giving effect the order of the ITAT, passed order u/s. 254/143(3) on 7.12.2009 assessing total loss of RS. (-)
1,91,37,726/-. Subsequently, the case of the assessee was reopened u/s. 147 as information was received from Investigation Wing of the Department that the assessee company had received accommodation entry from M/s Garg Petroleum Private Limited through banking channel. AO considered this information and had reason to believe that income of the assessee to the extent of Rs. 7 lacs had escaped assessment. After recording the reasons to believe, AO issued Notice dated 30.3.2010 after obtaining necessary approval from CIT-II, New Delhi. In response to the said notice, assessee filed a letter dated 5.4.2010 stating therein that the return filed earlier and as already assessed u/s. 143(3) may be accepted as return filed under section 148. The assessee further requested to supply a copy of reasons which was duly supplied to him. The assessee was asked to substantiate the identity, genuineness, and creditworthiness of the share application money of RS. 7 lacs received by it from M/s Garg Petroleum Private Limited.
Subsequently notice u/s. 143(2) was issued to the assessee.
Assessee filed objections to the reopening of the assessment and issuing of notice u/s. 148 by his letter filed on 10.12.2010 which were rejected vide order sheet entry dated 10.12.2010. Thereafter, AO observed that the assessee has shown receipt /credit of Rs. 7 lacs as share application money through transaction where no real transaction took place, hence, the same was treated as unexplained funds and added back to the income of the assessee and assessed the same at loss of Rs. 1,84,37,726/- passed u/s. 147/143(2) of the I.T. Act, 1961 vide his order dated 24.12.2010.
3. Against the order of the Ld. AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated 08.2.2013 has dismissed the appeal of the assessee.
4. Aggrieved with the order of the Ld. CIT(A), Assessee is in appeal before the Tribunal.
During the course of hearing Ld. Counsel of the assessee argued only the legal issue relating to reopening. He submitted that the Notice under section 148 is illegal because reopening is barred in view of first proviso to Section 147 as the case is governed by first proviso to section 147 and not by the main section
In the original assessment made under section 143(3) vide assessment order dated 30.3.2006 the Assessing Officer had made detailed enquiry of the share application money received by the assessee-company. The Assessing Officer issued notice u/s 148, i.e. after the expiry of four years from the end of the relevant assessment year. He further stated that there was no omission or failure on part of the assessee to disclose fully and truly all material facts relating to share application money because the assessee had submitted details of share application money in initial assessment proceedings which was verified by the Assessing Officer by way of issue of summons to the share applicant who duly responded to the summons. He further stated that in the reason recorded to issue notice u/s. 148, the AO has nowhere alleged that escapement of income has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for assessment of that year. In order to support his contentions, he relied upon the following judgments of the Hon’ble Delhi High Court by filing the copies thereof with the Paper Book and requested to quash the reassessment. - CIT v. Suren International P. Ltd. (2013) 357 ITR 24 (Del)
- Haryana Acrylic Manufacturing Company v. CIT (2009) 308 ITR 38 (Del) - JSRS Udyog Limited v. ITO (2009) 313 ITR 321 (Del) - Wel Intertrade P. Ltd. ITO (2009) 308 ITR 22 (Del)
6. On the other hand, Ld. DR relied upon the order of the Ld. CIT(A) and stated that the Ld. CIT(A) has passed a well reasoned order on the basis of the documentary evidence filed by the assessee as well as prevailing law. He further stated that Notice u/s. 148 has been issued after adopting the prescribed procedure under the law. Therefore, he stated that the question of quashing the reassessment does not arise. Accordingly, he requested that the Appeal filed by the Assessee may be dismissed.
We have heard both the parties and perused the records especially the orders of the Revenue authorities alongwith the Paper Book filed by the assessee having various documentary evidences. We have also perused the case laws cited by the Ld. Counsel of the Assessee. In this case the original return was filed on 28.11.2003 declaring loss of Rs. 1,21,87,176/-. The return was duly processed under section 143(1)(a) of the Act on 15.3.2004.
The assessee company is engaged in the business of manufacturing of yarn. The assessment was completed under section 143(3) on 30.3.2006 at a loss of Rs. 96,87,176/- after making an addition of Rs. 25,00,000/- under section 68 of the Income Tax Act, 1961. The Ld. CIT(A) vide order dated 15.5.2007 deleted the addition of Rs. 25,00,000/- and the said deletion was subsequently confirmed by the ITAT vide order dated 17.10.2008 and the Hon’ble High Court vide order dated 8.7.2009. Accordingly, the AO by giving effect the order of the ITAT, passed order u/s. 254/143(3) on 7.12.2009 assessing total loss of RS. (-) 1,91,37,726/-. Subsequently, the case of the assessee was reopened u/s. 147 as information was received from Investigation Wing of the Department that the assessee company had received accommodation entry from M/s Garg Petroleum Private Limited through banking channel. AO considered this information and had reason to believe that income of the assessee to the extent of Rs. 7 lacs had escaped assessment. After recording the reasons to believe, AO issued Notice dated 30.3.2010 after obtaining necessary approval from CIT-II, New Delhi. In response to the said notice, assessee filed a letter dated 5.4.2010 stating therein that the return filed earlier and as already assessed u/s. 143(3) may be accepted as return filed under section 148. The assessee further requested to supply a copy of reasons which was duly supplied to him. The assessee was asked to substantiate the identity, genuineness, and creditworthiness of the share application money of RS. 7 lacs received by it from M/s Garg Petroleum Private Limited. Subsequently notice u/s. 143(2) was issued to the assessee. Assessee filed objections to the reopening of the assessment and issuing of notice u/s. 148 by his letter filed on 10.12.2010 which were rejected vide order sheet entry dated 10.12.2010. Thereafter, AO observed that the assessee has shown receipt /credit of Rs. 7 lacs as share application money through transaction where no real transaction took place, hence, the same was treated as unexplained funds and added back to the income of the assessee and assessed the same at loss of Rs. 1,84,37,726/- passed u/s. 147/143(2) of the I.T. Act, 1961 vide his order dated 24.12.2010 and Ld. CIT(A) vide order dated 8.2.2013 dismissed the appeal of the Assessee.
7.1 For the sake of clarity, we are reproducing the reasons recorded by the AO as under:-
“The above assessee filed return of income on 28/11/2003 at return loss of Rs, 1,21,87,176/.The return was processed u/s 143( 1) at returned income. The assessment was completed under section 143(3) on 30.03.2006 at loss of Rs. 96,87,176/-. After giving effect of order of Hon’ble Delhi High Court the assessed loss at Rs, 1,91,37,726/-. The Investigations were conducted by the Investigation wing of the Department on certain persons engaged in providing accommodation entries to beneficiaries of their services, in return of commission. It has been revealed that many persons were using services of accommodation entry operators to channelize their own unaccounted money in their regular books of accounts by routing the same through the accounts of Accommodation entry providers.
2. The modus operandi of these entry providers and beneficiaries of their services, was detected as under:
2.1 Entries were being broadly taken for two purposes: a) To plough back unaccounted black money for the purpose of business or for personal needs such as purchase of assets etc., in the form of gifts, share application money, loans etc. b) To inflate expenses in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes.
2.2 The assessees who had unaccounted money (called as entry takers or beneficiaries) and wanted to introduce the same in the books or accounts without paying tax, approached another person (called as entry operator) and handed over the cash (plus commission) and had taken cheques/DDs/Pos. The cash was being deposited by the entry operator in a bank account either in his own name or in the name of relative/friends or other person hired by him, for the purpose of opening bank account. In most of these bank account the introducer was the main entry operator and the cash deposit slips and other instruments were filled by him. The other persons (in whose name the a/c is opened) only used to sign the blank cheque book and hand over the same to the main entry operator. The entry operator then used to issue cheques/DDs/Pos in the name of the beneficiary from the same account (in which the cash is deposited) or another account in which funds were transferred through clearing in two or more stages. The beneficiary in turn deposited these instruments in his bank accounts and thus his unaccounted money is introduced to his regular books of account in the form of gift, share application money loan etc through banking channels.
2.3 The operators gave the account holders amounts ranging from Rs 1000 to 2000 per month. These account holders were masons, plumbers, electricians, peons, drivers etc, whose earnings are not sufficient for a living. They earned normally Rs 3 to 5 thousand per month in their normal work and by working for the entry operators earned extra income of Rs 2 to 4 thousand per month, Their signatures were taken on blank gift deeds, cheque books, share application money etc. In fact these persons signed all types of papers they were asked to sign. They were made directors of companies, partners of firms and proprietor of different concerns solely for operation of these accounts. Actually, many of them were not even aware of the tax implications etc. Their only concern was with the few thousand rupees given to them by the entry operators.
Summing up, the report as a result of these extensive
enquiries carried out by the DIT(Inv.), New Delhi has established e non-genuineness of transactions, whether shown by beneficiaries as inflow of Share Capital or receipt of Gifts or consideration for sale-purchase. The creditworthiness of the persons/persons controlling the concerns who have given these credit entries/share capital/gifts/sale consideration has also not been established as they have been found to be man of no means.
The said report of Investigation Wing of the Department,
on the investigations conducted in the case of various accommodation entry providers along with the list of the beneficiaries of their services, was forwarded to this office through Addl.CIT, Range-5, vide letter F.No. Addl.
CIT/Range-5/2005-06/759 dated 13.3.2006.
4.1 Enquiries revealed that one Shri Mahesh Garg, was controlling a number of bank accounts In various names
& was using various persons operate these accounts. In this regard, statements on oath u/s 131 of the I. T. Act,
1961 of Mahesh Garg was recorded by the Addl. DIT
(Inv.), Unit—I, New Delhi. Following is the gist of the statements & letters containing admissions relevant to this case:-
(vii) Statements were given on oath by Shri
Mahesh Garg before Addl. DIT (Inv.), Unit, New
DeIhi on 22.9.2003 in which he has admitted to have indulged in giving entries. He has also admitted that he is controlling various persons who sign on his behest to provide the accommodation
Ltd ..
(viii) Sh. Mahesh Garg In his statement has elaborated the modus operandi adopted by them In giving accommodation entries In his answer to question 4, 5 and 6.
5. In the instant case of the assessee, Mls KC Fibres
Ltd., information has been received that the assessee has taken the accommodation entries as noted below:-
Bank & Amount Instrument Date Credit entry Branch No. coming from the account of SBOP, 700000 159077 06.02.03 Garg Wazirpur Petroleum Pvt. Ltd. Total 7,00,000/-
In view of the findings of the investigation report, the creditworthiness of the lenders have not been established and these transactions seem to be non genuine. I therefore, have reason to believe that the amount of Rs. 7,00,000/- represents income of the assessee chargeable to tax which has escaped assessment for AY. 2003-04.