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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-1, NEW DELHI
ORDER PER N.K. SAINI, A.M.
This is an appeal by the Assessee against the order dated 25/11/2013 of the C.I.T.(A)-XVII, New Delhi. Following grounds has been raised in this appeal :
2 Dhanuka Agritech Ltd.
That on the facts and circumstances of the case and in law, the order passed by Ld. CIT(A)-XVII, New Delhi (Hereinafter referred to as “CIT(A)”) is bad in law.
2. That on the facts and circumstances of the case and in law, the CIT(A) was not justified in holding that reassessment proceedings are valid even though the notice of re-opening was not supplied within 6 years time limit as provided in Section 149 of the Income Tax Act, 1961.
That on the facts and circumstances of the case and in law, the CIT(A) was not justified in holding that the reassessment proceedings was not illegal and void-ab-initio even though there was absence of reasons to believe that there was escapement of income and moreover the case of the assessee falls in first proviso to section 147 of the Income-tax Act.
4. That on the facts and circumstances of the case and in law, the CIT(A) was not justified in upholding the addition of Rs. 11,00,000/- under sction 68 as unexplained credit in respect of loans taken from following parties. a) Shashtri Eincapvest (P) Ltd. Rs. 5,00,000/- b) ABN Aluminimum Industries Rs. 2,00,000/- c) Natraj Communications (P) Ltd. Rs. 4,00,000/- 5. That the appellant craves leave to add, alter, amend or modify any ground at the time of hearing or earlier.”
Ground nos. 1 and 5 are general in nature and ground no. 2 was not pressed so these grounds do not require any adjudication on our part. Ground no. 3 is legal ground which is related to the validity of the reassessment proceedings u/s 147 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
3 Dhanuka Agritech Ltd. 3. Facts of the case in brief are that the assessee filed its return of income after setting off the brought forward losses of Rs. 80,29,450/- against the gross total income, on 27.11.2014. However, the tax was paid on the Book Profit u/s 115JB of the Act at Rs. 8,136/-. The return of income was processed u/s 143(1) of the Act at the same figure.
Later on, the case was selected for scrutiny and the assessment was framed u/s 143(3) of the Act by making an addition of Rs. 2,45,669/- on account of deferred revenue expenditure, and the income was assessed at Rs. 1,08,481/- u/s 115JB of the Act. Subsequently, on the appeal of the assessee, the addition made by the AO was deleted by the ld. CIT(A) and the ITAT. The AO reopened the assessment u/s 147 of the Act by issuing notice u/s 148 of the Act but the assessee did not file the return of income in compliance to the said notice u/s 148 of the Act within the stipulated time and asked the copy of reasons recorded for re-opening the assessment. The AO observed that in this case, a 4 Dhanuka Agritech Ltd. specific information was received from the Investigation Wing and that the AO had reason to believe that the assessee had received amounts through cheques / pay orders totalling to Rs. 11,00,000/- i.e. 5 lacs from M/s. Shastri Eincapvest Pvt. Ltd. on 13.6.2002, Rs. 2 lacs from M/s.
ABN Aluminimum Industries on 04.09.2002 and Rs. 4 lac from M/s. Natraj Communications Pvt. Ltd. on 05.09.2002 which are entry operator and indulged in receiving accommodation entries. The AO made the addition of Rs. 11,00,000/-.
Being aggrieved the assessee carried the matter to the ld. CIT(A) and challenged the validity of the re-opening done by the A.O. by issuing the notice u/s 148 of the Act. The ld. CIT(A) did not find merit in the submissions of the assessee and held that the AO had reasons to believe that income had escaped the assessment and he was within his competence while invoking the powers contained in section 147 of the 5 Dhanuka Agritech Ltd. Act. He also observed that there was no provision in section 148 of the Act that reasons for re-opening should also be given within the limitation period. Now the assessee is in appeal.
The ld. Counsel for the assessee submitted that the earlier assessment was framed u/s 143(3) of the Act by the AO who made the inquiries relating to the loans raised and framed the assessment after applying his mind. He also drew our attention towards page no. 8 of the assessee’s paper book which is the copy of the reasons recorded and 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
6 Dhanuka Agritech Ltd. 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 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 at page no. 88 to 95 of the assessee’s paper book. It was further submitted that the assessee repaid the loans in the year under consideration itself and genuineness of those loans were not doubted while framing the assessment u/s 143(3) of the Act.
In his rival submissions, The ld. DR 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.
7. 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 necessary to see the reasons recorded by the AO for reopening the assessment u/s 147 of the Act. In the present case, the AO recorded the reasons on 30.3.2010 copy of which is placed at page no. 8 of the assessee’s paper book and read as under :
30.03.2010- In this case it was gathered that the Assessee during the year under consideration has received following amount from various persons as per detail below on various dates in various forms. It has come to the knowledge of undersigned that the persons from whom the amount was received are entry operator and have provided the entries to the assessee after receiving the amount in cash from the Assessee. The Assessee is a type of beneficiary and has introduced the unaccounted money in the books of accounts by way of obtaining the entry from the entry operator are as under : S Name of the Beneficiary Value of Date of Name of the Operator’s Opera l. assessee/Benefi Bank name entry the entry Operator Bank tor’s N ciary taken Accou O nt No. . 1 Dhanuka SBBJ, Faiz 5,00,000 12.06.2002 Shrastri JAILAXMI 3027 Pesticides Ltd. Road fincapvest COOP Pvt. Ltd. BANK FATEHP URI 2 Dhanuka 2,00,000 04.09.2002 ABN JAILAXMI 3033 Pesticides Ltd. SBP Aluminium COOP Industries BANK FATEHP URI 3 Dhanuka SBP road 4,00,000 05.09.2002 Natraj JAILAXMI 21165 Pesticides Ltd. Communicati COOP on (P) Ltd. BANK FATEHP URI Therefore, I have reasons to believe that an income of Rs. 11,00,000/- for the F.Y. 2002-03 relevant to A.Y. 2003-04 has escaped assessment. Issued Notice u/s 148 of the IT Act.
From the above reasons recorded by 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. It is also noticed that the assessee repaid the loans in the year itself which is evident from schedule D attached to the balance sheet in respect of unsecured loans as mentioned in the submissions of the assessee placed at page no. 75 of the assessee’s paper book
9 Dhanuka Agritech Ltd. wherein it has been clarified that short term inter-corporate loans outstanding as on 31.3.2003 were at Rs. 2,04,04,010/- whereas at the end of immediately preceding years, those were at Rs. 7,02,89,764/-. As such there was a reduction in the loans. The contention of the ld. Counsel for the assessee that the loans were repaid in the same year was also not rebutted.
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 para 12 & 13 of the order dated 8th October, 2015 as under :
“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
10 Dhanuka Agritech Ltd. 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.”
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 11 Dhanuka Agritech Ltd. 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 understanding as to whether the AO applied his mind to the material, particularly when he did not describe how and what manner it came to his knowledge that the assessee receive 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
12 Dhanuka Agritech Ltd. the reassessment order of the A.O., therefore no findings are given on the Ground no. 4 raised by the assessee.
In the result appeal of the assessee is allowed. (Order Pronounced in the Court on 11/05/2016).