Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI
Before: SHRI I.C. SUDHIR, JM & SHRI L.P. SAHU, AM
ORDER
Per L.P. SAHU, AM:
This is an appeal filed by the assessee against the order of the ld. CIT(A)-VIII, New Delhi, vide order dated 15/03/2013 for the A.Y. 2003-04 on the following grounds of appeal: 1. “The ld. CIT(A) is not justified in law and facts and circumstances of the case in confirming the action of Assessing Officer of initiation of proceedings u/s 147 of the I.T. Act without complying with the provision of section 147 to 151 of the I.T. Act.
2. The ld. CIT(A) without considering the various case law relied upon and ignoring the documents, explanation and evidences placed on record, is not justified in law and facts and circumstances of the case in confirming the addition of Rs. 80.00 lacs made by the Assessing Officer u/s 68 of the I.T. Act on account of addition to share capital treating the same as bogus accommodation entries.
3. The ld. CIT(A) is not justified in law and facts and circumstances of the case in confirming the addition of Rs. 40,000/- made by the Assessing Officer in the income of appellant company u/s 69 of the I.T. Act on account of alleged commission paid. On the alleged bogus accommodation entry of Rs. 80.00 lacs received.
4. The ld. CIT(A) is not justified in law and facts and circumstances of the case in not admitting the addition ground of appeal and confirming the addition of Rs. 1,49,298/- on account of ROC fee paid for increase in authorized share capital.
5. The Appellant Company has every right to make, add, delete, modify or alter any grounds of appeal at the time of hearing.
2. The brief facts of the case are that the return of income was filed on 1st October, 2003 declaring an income of Rs. 52,070/-. The case was reopened u/s 147 by issuing notice u/s 148. The ld. Assessing Officer received information from the following beneficiaries and on the basis on which he reopened the cash by issuing notice u/s 148.
3. The ld. Assessing Officer recorded reasons for reopening on dated 17/03/2010 which is as under: “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 to be as under: 2.1 Entries were being broadly taken for two purposes:
1. 1. 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.
2. 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 assesses who had unaccounted money (called as entry takers or beneficiaries) and wanted to introduce the same in the books of 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 accounts the introducer was the main entry operator and the cash deposit slips and other instruments were filed 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 the money came 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 the 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 seen to be man of no means.
4. 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.
5. In the instant case of the assessee, M/s K.S. Nutritions And Foods (P) Ltd. information has been received that the assessee has taken accommodation entries as noted below: Bank of the Branch of the Amount Instrument No. Date Credit entry Assessee Bank Coming from the Account of PO 500500 848103 24.04.02 TECHONOCOM ASSOCIATES P. LTD. NEW DELHI 500750 30.04.02 K.R.FINCAP P. LTD. NEW DELHI 500750 30.04.02 K.R.FINCAP P. LTD. NEW DELHI 500750 2.05.02 NISHANT FINVEST P.LTD. NEW DELHI 500750 2.05.02 NISHANT FINVEST P. LTD. OBC SARITA 500000 4.05.02 DIVISION VIHAR TRADING P. LTD. OBC SARITA 500000 4.05.02 DIVISION VIHAR TRADING P. LTD. OBC SARITA 250000 13.5.02 CHINTPURNI VIHAR CREDITS OBC SARITA 250000 13.5.02 CHINTPURNI VIHAR CREDITS OBC SARITA 500000 18.5.02 CHINTPURNI VIHAR CREDITS OBC SARITA 500000 18.5.02 CHINTPURNI VIHAR CREDITS OBC SARITA 500000 18.5.02 DINANATH VIHAR LUHARIWAL SPL. MILL OBC SARITA 500000 18.5.02 DINANATH VIHAR LUHARIWAL SPL. MILL OBC SARITA 250000 23.5.02 CHANGIA VIHAR STEELS P. LTD. OBC SARITA 250000 23.5.02 CHANGIA VIHAR STEELS P. LTD. OBC SARITA 500000 23.5.02 NIKHIL VIHAR BUILDERS & PROMOTERS P. LTD. OBC SARITA 500000 23.5.02 NIKHIL VIHAR BUILDERS & PROMOTERS P. LTD. 5.1 Further, enquiries by the Investigation Wing revealed that one Shri MAHESH GARG, S/o Shri R.S. Garg, R/o G-8/94, Sector 15, Rohini, New Delhi was controlling a number of bank accounts in various names & was using various persons enlisted in his affidavit dated 6.2.2004 to operate these accounts. In this regard, statements on oath u/s 131 of the I.T. Act, 1961 of Shri Mahesh Garg was recorded on 10.9.2003 and 22.09.2003 by the Addl.DIT(Inv.), Unit-1, New Delhi. Following is the gist of the statements & letters containing admissions relevant to this case: i. Statements were given on oath by Shri Mahesh Garg before Addl. DIT (Inv.), Unit-1, New Delhi 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 entry. ii. Shri Mahesh Garg in his statement dt. 10.9.2003 has elaborated the modus operandi adopted by them in giving accommodation entries in his answer to question 4, 5 and 6. iii. Shri Mahesh Garg has admitted that the above companies which have given accommodation entries in this case were controlled by him and was used for the purpose giving accommodation entries.
As per the findings of the investigation report, the creditworthiness of the lenders has not been established and these transactions seem to be non genuine. I, therefore, have reasons to believe that this amount of Rs. 80,04,000/- represents income of the assessee chargeable to tax which has escaped assessment for A.Y. 2003-04.”
The first notice was issued u/s 148 on dated 19/03/2010. The ld. AR of the appellant wrote a letter dated 28/04/2010 to the Assessing Officer for the demand of reasons recorded and necessary approvals u/s 151 of the Income Tax Act (hereinafter referred to as an Act). The ld. Assessing Officer gave reply of this letter the contents of the letter are as under: No. ITO/W-5(1)/2010-11/437 Dt: 08.10.2010 To, The Principal Officer, M/s K.S. Nutritions & Foods P. Ltd., 58A/4, Sainik Farms, New Delhi – 110 062. Sir/Madam, Sub.: Proceedings u/s 147 in the case of M/s K.S. Nutritions & Foods P. Ltd., for A.Y. 2003-04 – reg. – Please refer to the proceedings u/s 147 in the case of M/s K.S. Nutritions and Foods Pvt. Ltd. initiated vide notice u/s 148 dated 19.03.2010. Please also refer to your letter stating that the original return filed for A.Y. 2003- 04 be considered as return filed in response to notice u/s 148. In this regard, please find enclosed copy of reasons recorded prior to issue of notice u/s 148 as requested by you. Notice u/s 142(1) & 143(2) are also enclosed herewith for compliance. Encl.: as above Sd/- (S.Easwar) Income Tax Officer Ward 5(1), New Delhi.
The Investigation Wing enquired that one Shri Mahesh Garg, S/o Shri R.S. Garg, R/o G-94, Sector 15, Rohini, New Delhi was controlling a number of bank accounts in various names and engaged in the accommodation entry. In this regard statements on oath u/s 137 of the 8 Act and Shri Mahesh Garg was recorded on 10th September, 2003 and 22nd September, 2003 by the ADIT, Investigation Wing 1, New Delhi was provided to the assessee. The AR of the assessee also sought copy of the necessary approvals as required u/s 151 of the Act but assessee alleged that till date no copy has been provided. But the Assessing Officer has wrongly mentioned in his order that notice has been issued after obtaining necessary section 151 of the I.T. Act, 1961.
6. During the course of hearing, information is regarding share application money received by the assessee were called for and it was submitted by the assessee. On the basis of reasons recorded the ld. Assessing Officer disallowed the share application money of Rs. 80,04,000/- and (commission paid therein Rs. 40,000/-) @ .25% of Rs. 80 lacs. The ld. Assessing Officer also disallowed the ROC fees debited to the P&L account of Rs. 149298/-. 7. Aggrieved by the order of the Assessing Officer the appeal before the first appellate authority and also confirmed the order of the Assessing Officer. 8. Aggrieved by the order of the ld. CIT(A) the assessee came before the Tribunal. 9. During the course of hearing, the assessee pointed out that the assessee’s appeal is in respect of legal issue that the reassessment proceedings u/s 147/148 is bad in law and this main issue should be decided first.
The ld. AR submitted that the assessee had categorically submitted before the Assessing Officer that notice issued u/s 148 of the Act in the case of the assessee had been invalid as same was issued on the basis of vague information stated to be received by the Assessing Officer from the Investigation Wing. The Assessing Officer had not properly adjudicated un-yield with the contention of the assessee till the date of hearing today. No copy of the approval has been provided to the assessee and reasons where supplied after the expiry of six months which is contrary to the law. Therefore, the entire assessment is not valid. He also alleged that the submissions made before the ld. CIT(A). The CIT(A) has not adjudicated the appellant submissions has not been properly considered by the ld. CIT(A) which has been placed on paper book page no. 12 to 50.
The ld. AR placed reliance on the order of coordinate bench in the case of Shri Balwant Rai Wadhwa vs. ITO, Ward 18(2) (ITA No. 4806/Del/2001). 12. The ld. AR submitted that the Income tax Act u/s 151 that pre condition for issuing notice has not been also complied. Section 151 reads as under: “151. (1) No notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice.
(2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. (3) For the purposes of sub-section (1) and sub-section (2), the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner or the Joint Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.]”
He further submitted that the Assessing Officer has not applied his mind before reopening the case. He simply relied on the information received from the Investigation Wing which has not been permitted for reopening assessment under the Act. He relied many case laws which were submitted before the CIT(A) through the written submissions dated 04/04/2011. The ld. AR further submitted that there was no material available with the Assessing Officer on the basis of which it could be alleged that entries under reference where bogus entries. Therefore, in the facts of the assessee no belief could be farmed to the effect income in the case of the assessee has escaped assessment. Accordingly, the conclusion of the Assessing Officer if the reasons recorded by him to the effect that amount of Rs. 80 lacs represents income of the appeal and chargeable to tax which has escaped assessment, is not supported by any information/material on record.
The ld. AR further submitted that as per the settled legal position the Assessing Officer made required to form his view and record the reasons for his swings the notice. He has made neither any investigation himself in regard to the transactions, nor he has recorded any satisfaction that the entries are bogus. There were no reasons recorded by the Assessing Officer as per statute and there was no new material available before the Assessing Officer for reassessment. Hence in the light of Delhi High Court the decision in the case of principles CIT vs. G&G Pharma India Ltd. as well as the various other case laws submitted before the authorities below.
The ld. DR submitted that the reasons were properly recorded and necessary approvals were obtained. Everything has come through from the proper channel there are full proof of receiving accommodation entry from the entry provider, creditworthiness is only material to reopen the parameters. Income tax matters are not criminal proceedings it is a civil matter. Ld. DR placed reliance on the following judgments: • CIT vs. Jansampark dated 11/03/2015 (Del.)(HC); • Nove Promoters • N.R. Portfolios & Other case laws relied on by the lower authorities which are all squarely applicable in this case. He submitted that on the date of recording of the reasons to believe the Assessing Officer is required to have a prima facie belief. The Assessing Officer has reopened the case of the assessee on the basis of various documentary evidence relating to the assessee showing that the assessee had received various bogus accommodation entries amounting to Rs. 80 lacs which has introduced its own unaccounted money in its bank account by way of above accommodation entries.
We have heard both the parties and perused the records available with us specially the contentions raised by the assessee along with various decisions cited by the assessee’s counsel on the issue in dispute as well as the legal compliance. Before commenting upon the merits of the case and on the arguments advanced by both the parties we want to discuss the reasons recorded for reopening the assessment in the case of the assessee.
The ld. AR vehemently objected that the reasons recorded for reopening of assessment were provided to the appellant company after the completion of six years from the end of the relevant assessment year. The reasons were recorded on 17/03/2010, whereas copy of the reasons were provided to the assessee on letter no. ITO/W-5(1)/2010-11/437 dated 8th October, 2010 which is beyond the period of six years. This case is squarely covered by the coordinate bench in for the AY 2001-02. For the sake of convenience and brevity, we are reproducing the findings of the case which is as under: “4. We have duly considered the rival contention and gone through the record carefully. Admittedly the reasons were not supplied to the assessee by 31st March, 2008 i.e. within a period of 6 years from the end of the asstt. year. The question before us is whether valid service of notice has been served upon the assessee within the limitation provided u/s 149 (1) (b) of the Act. According to this section the notice ought to be served within 6 years from the end of the asstt. year. The contention of the assessee is that Hon’ble Delhi High Court has held that if the reasons recorded by the AO for reopening of assessment has not been supplied or served within 6 years then it will be construed that no valid notice has been served upon the assessee within 6 years. The authoritative observation made by the Hon’ble High Court in this connection read as under :- 24. Thirdly, it could be argued that the reasons supplied to the petitioner in September, 2004 be disregarded so also the objections filed by it as also the impugned order dated 2-3- 2005 and the reasons noted in the said form be now taken as the reasons for the issuance of the notice under section 148 and the petitioner may now prefer his objections, if any, and thereupon the Assessing Officer be directed to pass a speaking order. In other words, such an argument requires us to sweep all the proceedings emanating from the supply of reasons in September 2004 and culminating in the passing of the order dated 2-3-2005 ‘under the carpet’, as it were. And, starting the process as per the directions given in GKN Driveshafts (India) Ltd.’s case (supra) afresh considering the reasons noted in the said form to be the actual reasons for the issuance of the notice under section 148. If we were to accept this argument, we would have to ignore the directions given by the Supreme Court in GKN Driveshafts (India) Ltd.’s case (supra) that the Assessing Officer is bound to furnish reasons within a reasonable time. The notice under section 148 was issued on 29-3-2004. The petitioner filed the return and sought reasons by its letter dated 11-5-2004. If the date of filing of the counter- affidavit in this writ petition is taken as the date of communication of the reasons which forms part of the said form, a copy of which is Annexure-A to the counter-affidavit, then the date of supply of reasons, based on this argument, would be 5-11-2007. This immediately makes it clear that the Assessing Officer, who was bound to furnish his reasons within a reasonable time, did not do so. The period which elapsed between 11-5-2004, when the petitioner made the request for communicating the reasons, and 5-11-2007, the date when the counter-affidavit was filed, can certainly not be regarded as a reasonable period of time. Apart from this, we must not forget the provisions of section 149 which prescribes the time-limit for a notice under section 148. Section 149(1)(b) stipulates the outer limit of six years from the end of the relevant assessment year where the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees one lakh or more for that year. This means that a notice under section 148, in the present case, could not, in any event, have been issued after six years from the end of the assessment year 1998-99, i.e., after 31-3-2005. In whichever way we look at it, a notice under section 148 without the communication of the reasons therefor is meaningless inasmuch as the Assessing Officer is bound to furnish the reasons within a reasonable time. In a case, where the notice has been issued within the said period of six years, but the reasons have not been furnished within that period, in our view, any proceedings pursuant thereto would be hit by the bar of limitation inasmuch as the issuance of the notice and the communication and furnishing of reasons go hand-in-hand. The expression ‘within a reasonable period of time’ as used by the Supreme Court in GKN Driveshafts (India) Ltd.’s case (supra) cannot be stretched to such an extent that it extends even beyond the six years stipulated in section 149. For this reason also, even assuming that we overlook all that has happened between 11- 5-2004, when the petitioner sought the reasons, and 5-11- 2007, when the said form annexed to the counter-affidavit was filed in this court, the validity of the notices under section 148 issued on 29-3-2004 and any proceedings pursuant thereto cannot be upheld.”
5. A plain reading of the above exposition of law at the end of Hon’ble Jurisdictional High Court make it clear that issuance of the notice and the communication and furnishing of reasons would go hand in hand. The reasons are to be supplied to the assessee before the expiry of period of 6 years. If it has not been done then validity u/s 148 could not be upheld. It is not in the income tax proceeding alone. In any proceeding say, civil or criminal, if a summon is issued to the defendant / respondent, is not accompanied with the copy of plaint or complaint then it is to be construed that no valid service of notice has been effected upon the defendant or the respondents whichever may be the case. The notice could be served at any point of time before the expiry of 6 years, if AO has reasons to believe that income has escaped assessment but, such reasons are also to be communicated to the assessee before the expiry of the limitation otherwise validity of such notice could not be sustainable. Being a subordinate authority to the Hon’ble High Court, we are bound to follow the authoritative exposition of law at the end of Hon’ble High Court . In view of the above discussion, we allow ground No. 2 of the assessee wherein he has pleaded that notice u/s 148 has not been served within the period of limitation upon the assessee. The assessment is not sustainable. It is quashed.
6. Since on the strength of Hon’ble Delhi High Court’s decision, we have held that a valid service of notice has not been effected upon the assessee and the asstt. order is not sustainable, we do not deem it necessary to examine the other issues, whether reopening is justified or not. In other words whether AO has reasons to believe that income has escaped assessment or not. We also do not deem it necessary to examine whether assessee has established that he has received genuine gifts or not. Both these issues are academic in view of our finding on ground No. 2 taken by the assessee.”
The ld. Assessing Officer has also not applied his mind before the reopening of the case for the reassessment.
Respectfully following the decision of the coordinate bench and the Hon’ble Jurisdictional High Court decisions and other case law cited by the assessee, we are of the considered opinion that notice has not been issued properly as per the provisions of the Income tax Act as specified.
During the course of hearing the ld. DR could not rebutted the assessee’s contention for necessary approval u/s 151 as required under the provisions of the Act.
Without going into the merits of the case we, thus, setting aside the orders of the authorities below in this regard. Direct the Assessing Officer to delete the additions made.