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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ : NEW DELHI
Before: SHRI N.K. SAINI & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. Anupam Tower Limited (hereinafter referred to as ‘the assessee’), by filing the present appeal sought to set aside the impugned order dated 27.05.2013 passed by the Commissioner of Income-tax (Appeals)-XXXIII, New Delhi qua the assessment year 2004-05 on the grounds inter alia that :-
“1. That on the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals)-XXXIII, New Delhi erred in rejecting appellant's contention that assessment order made by Assessing Officer was bad in law and void ab-initio.
2. That without prejudice, on the facts and circumstances of the case and in law, the Commissioner of Income Tax(Appeals)-XXXIII, New Delhi erred in upholding the assumption of jurisdiction u/s 147 by the Assessing Officer and in making the assessments in pursuance thereof.
3. That on the facts and circumstances of the case and in law, the Commissioner of Income Tax(Appeals)-XXXIII, New Delhi erred in confirming the addition of RS.15lacs made by Assessing Officer u/s 68 of the Income Tax Act,1961. 3.1 That on the facts and circumstances of the case and in law, the Commissioner of Income Tax(Appeals)-XXXIII, New Delhi erred in confirming the addition of amount of Rs.15 lacs received by the appellant towards Sale of Investment in share as income u/s 68 of the Income Tax Act, 1961 despite several judicial pronouncements to the effect that section 68 was not applicable in such a situation.
4. The appellant craves permission to add, amend, alter or vary all or any grounds of appeal on or before the date of hearing of the appeal.”
Briefly stated that facts of this case are : assessment of the assessee was completed for the year 2004-05 declaring total income at Rs.41,940/- on 25.10.2014 but subsequently on receipt of information from ACIT, Central Circle 19, New Delhi in March 2011 that the assessee has received accommodation entries to the tune of Rs.15,00,000/- from the Federal Bank account of M/s.
Chander Prabhu Financial Services, a shell company floated by S.K. Gupta, during the financial year 2003-04 and consequently, to reassess the income which has escaped assessment, a notice u/s 148 of the Income-tax Act, 1961 (hereinafter ‘the Act’) was issued and in response thereto, assessee filed its return of income on 25.04.2011 declaring total income at Rs.41,940/-. Assessee filed objections for initiation of proceedings u/s 147 of the Act which were rejected. Shri Ajay Bhagwani, CA attended the proceedings, filed necessary details and clarifications. Assessee was provided with copy of various statements of S.K. Gupta as well as ledger account of Shri Aneja in the books of S.K. Gupta. Assessee filed comprehensive submission explaining the queries raised by the AO. Assessee also claimed that it has sold investment of Rs.15,00,000/- during the financial year 2003-04 to Chander Prabhu Financial Services Limited (CPFSL). However, S.K.
Gupta admitted that he has provided accommodation entries to various concerns in the form of share application money / share capital / sale & purchase of share / bogus expenditure of entries / loan etc. Assessee has failed to furnish any confirmation or any supporting evidence to support his contention that he has received an amount of Rs.15,00,000/- from CPFSL on account of sale of investment during financial year 2003-04, thus failed to establish the genuineness of the transaction and creditworthiness of the creditor in respect of the amount of Rs.15,00,000/-. So, the amount of Rs.15,00,000/- is treated as undisclosed income of the assessee u/s 68 of the Act and thereby made an addition to the total income of the assessee which comes to Rs.15,41,940/-.
3. Assessee carried the matter before the ld. CIT (A) who has dismissed the appeal. Feeling aggrieved, the assessee came up in appeal before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
5. Ld. AR for the assessee contended that the AO without applying the mind and without being satisfied himself as required u/s 147 of the Act proceeded to reopen the proceedings which are bad in law and relied upon the decision rendered by Hon’ble jurisdictional High Court in Pr. Commissioner of Income Tax- 4 vs. G & G Pharma Limited in ITA 545/2015 order dated 08.10.2015 and ITAT, Delhi Bench ‘H’, New Delhi in case of USG Buildwell Pvt. Ltd. vs. ACIT, Central Circle 23, New Delhi order dated 15.02.2016. However, on the other hand, the ld. DR for the revenue relied upon the order passed by the AO as well as the ld. CIT (A).
Undisputedly, it is settled principle of law that the AO is required to reach at an independent conclusion by applying his own mind that he has reason to believe that the income of the assessee has escaped assessment to assume the jurisdiction for reopening of the assessment u/s 147 / 148 of the Act.
Now before proceeding further, we would like to peruse the decision rendered by the AO for reopening of the assessment u/s 147 of the Act which are reproduced for ready reference as under :-
"2. As per the information received from the ACIT, Central Circle-19, New Delhi, a survey operation was conducted in the S K Gupta group of cases on 20.11.2007 at 308. Arunachal Building, 19, Barakhamba Road, New Delhi- 110001 and 1007-1008, Arunachal Building, 19, Barakhamba Road, New Delhi-110001. During the course of survey proceedings several ledger accounts maintained in Tally for the FY 2003-04, besides various other documents / accounts were found. Further, during the course of survey & assessment proceedings, Sh S K Gupta admitted that he had been providing accommodation entries to various persons beneficiaries through a large no. of shell companies / concern floated by & effectively controlled by him. He operated a number of accounts in the same bank/branch or in different branches, in the names of these shell companies/concerns. After receiving cash from the beneficiaries, Sh S K Gupta used to deposit the same in the bank account of one of these shell companies / concern. Then he used to route the entries through two to four accounts of these shell companies / concerns before ultimately transferring same to the bank accounts of the beneficiaries to give the color of genuineness to these transactions.
Further, as per the information received from the ACIT, Central Circle-19, New Delhi, M/s Anupam Towers Pvt Ltd has received amount of Rs.10,00,000/- vide cheque no. 778929 dated 15.10.2003 and amount of Rs.5,00,000/- vide cheque no.778945 dated 18.11.2003 from the Federal Bank account of M/s Chanderprabhu Financial Services/ Chanderprabhu Finance & Securities limited, a shell company/concern floated/controlled by Sh. S.K. Gupta.
4. In view of the above, 1 have reason to believe that amount/income of Rs.15,00,000/- has escaped assessment for the A. Y 2004-05 for failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment within the meaning of section 147 of the IT Act, 1961.
Issue notice u/s 148 of the IT Act, 1961"
Bare perusal of the reasons recorded by the AO for initiation of the proceedings u/s 147 of the Act apparently goes to prove inter alia that he has simply acted on the basis of information provided by the ACIT, Central Circle 19, New Delhi who has conducted survey operation in the S.K. Gupta Group of cases on 20.11.2007 at 308, Arunachal Building, 19, Barakhamba Road, New Delhi- 110001 and 1007-1008, Arunachal Building, 19, Barakhamba Road, New Delhi-110 001; that the information supplied by ACIT, Central Circle 19, New Delhi is again based upon the statement of S.K. Gupta recorded during survey proceedings; that as per the information received by the AO, assessee reported to have received Rs.10,00,000/- vide cheque no. 778929 dated 15.10.2003 and an amount of Rs.5,00,000/- vide cheque no.778945 dated 18.11.2003 from the Federal Bank account of M/s Chanderprabhu Financial Services/ Chanderprabhu Finance & Securities limited, a shell company/concern floated/controlled by Sh. S.K. Gupta.
Now, the sole question arises for determination in this case is “as to whether the AO can initiate proceedings u/s 147/148 of the Act on the basis of certain communication received from his superior revenue authorities showing that the assessee has been provided with accommodation entry to the tune of Rs.15,00,000/- by a shell company/concern floated by S.K.
Gupta?.
Identical issue has come up before the Hon’ble Supreme Court in judgment cited as Chhugamal Rajpal vs. S.P. Chaliha – (1971) 79 ITR 603, wherein it is held as under :-
“The Supreme Court was dealing with a case where the AO had received certain communications from the Commissioner of Income Tax showing that the alleged creditors of the Assessee were “name-lenders and the transactions are bogus.” The AO came to the conclusion that there were reasons to believe that income of the Assessee had escaped assessment. The Supreme Court disagreed and observed that the AO “had not even come to a prima facie conclusion that the transactions to which he referred were not genuine transactions. He appeared to have had only a vague felling that they may be “bogus transactions.” It was further explained by the Supreme Court that : “Before issuing a notice under S. 148, the ITO must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under S. 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the ITO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of cl. (a) or cl. (b) of S. 147 are satisfied, the ITO has no jurisdiction to issue a notice under S. 148.”
The Supreme Court concluded that it was not satisfied that the ITO had any material before him which could satisfy the requirements under Section 147 and therefore could not have issued notice under Section 148.”
Identical issue has also come up before Hon’ble jurisdictional High Court in judgment cited as G & G Pharma India Ltd. (supra) wherein Hon’ble High Court, by following the judgment delivered by Hon’ble Supreme Court, entitled Chhugamal Rajpal vs. S.P. Chaliha (supra) held 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 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.”
Furthermore, similar issue has cropped up before the ITAT, Delhi Bench ‘H’ in M/s. USG Buildwell Pvt. Ltd. (supra), wherein addition of Rs.20,00,000/- was made by the AO on the basis of similar intimation sent by ACIT, Central Circle 19, New Delhi on the basis of survey operation conducted in S.K. Gupta Group cases on 20.11.2007 and the coordinate Bench came to the conclusion that the AO has not applied his mind on the information received form ACIT as required u/s 147 of the Act and as such, assessment framed u/s 143 read with section 143(3) is not sustainable.
Now, adverting to the case at hand, we are of the considered view inter alia : (i) that AO has merely acted in mechanical manner on receipt of information from ACIT, Central Circle 19,
New Delhi that he has reason to believe that income of Rs.15,00,000/- has escaped assessment for the year
2004-05 due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment; (ii) that the AO has not even satisfied himself to prima facie make out, if, on his own, he has satisfied himself that the income of Rs.15,00,000/- has escaped assessment in the year under assessment by perusing record, if any; (iii) that when the cheque numbers and date of the amount of alleged accommodation entries were available with the AO, he was required to conduct independent investigation to satisfy himself, that such and such income has escaped assessment; (iv) that at the time of filing the original return of income filed by the assessee on 25.10.2014, the assessee might have recorded the transaction of Rs.15,00,000/- between the assessee and S.K. Gupta group company and at that time, the AO was under obligation to investigate if that transaction was bogus with a shell company; (v) that forming an opinion merely on the basis of information supplied to the AO by ACIT, Central
Circle 19, New Delhi that S.K. Gupta has provided accommodation entries to the assessee to the tune of Rs.15,00,000/- does not amount to satisfaction of the AO to reopen the case u/s 147 of the Act;
(vi) that in view of the law laid down by the Hon’ble Supreme Court and Hon’ble jurisdictional High Court in the judgment cited as Chhugamal Rajpal vs. S.P. Chaliha and G & G Pharma India Ltd.(supra) respectively, the initiation of proceedings u/s 147 of the Act is itself bad in law and consequent assessment framed u/s 143(3)/147 of the Act is not sustainable, hence hereby set aside.
Since the very initiation of the proceedings u/s 147 of the Act and consequent assessment framed u/s 143(3)/ 147 have held to be not sustainable in the eyes of law, grounds no.3 & 3.1 raised by the assessee challenging the addition of Rs.15,00,000/- made by the AO and confirmed by the ld. CIT (A) u/s 68 of the Act have become infructuous. Resultantly, present appeal filed by the assessee is hereby allowed.
Order pronounced in open court on this 17th day of May, 2016.