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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ : NEW DELHI
Before: SHRI H.S. SIDHU & SHRI PRASHANT MAHARISHI
The Assessee has filed the Appeal against the impugned Order dated 16.7.2013 passed by the Ld. CIT(A)-XVII, New Delhi relevant to assessment year 2002-03. 2. The grounds raised by the Assessee reads as under:-
That on the facts and in the circumstances of the case and in law, whether there was any material before the assessing authority to form an opinion that income had escaped assessment in the hands of the appellant, in view of the decision of the Hon'ble Supreme Court in the case of M/s. Lovely Exports Pvt. Ltd. where the court has held that if the share application money is received by the assessee company from alleged bogus shareholders, whose name was given to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law.
That on the facts and I the circumstances of the case and in law, whether the assessing officer had any material before him to hold that the appellant's income has escaped assessment even though he had no knowledge as to what has been stated and who had made the alleged statement before Directorate of investigation, that share capital money received by the appellant received through banking channel, was a bogus transaction? 3. That on the facts and in the circumstances of the case and in law, the order u/s 143(3)/147 passed by the assessing authority is a valid order though the same as against the directions of Addl. Commissioner of Income tax u/s 144 A of the Income tax Act.
That on the facts and in the circumstances of the case and in law, whether the assessing officer was justified in rejecting all documentary evidence in support of the share capital received as against oral alleged statement made by some unknown person before the Director of investigation, without making the statement available to the appellant for rebuttal or without giving the opportunity to cross examine the person making the statement? 5. Whether (IT (A) was legally justified in rejecting the appeal even without considering the following points and submissions made to him through written submissions during the appeal proceedings: i) Fresh confirmation with copies of income tax returns for the assessment year 2002-03 and assessment year 2012-13 with PAN details of both the companies filed before him ii) Copies of ROC returns filed before him. iii) List of Directors of both the companies with latest addresses iv) Copies of Balance Sheet showing investment.
Whether the authorities below were justified in not applying the ratio of decision of Hon'ble Supreme Court in the case of M/s. Lovely Exports Pvt. Ltd. and Delhi High Court case in the case of Dwarkadhish Investment Pvt. Ltd. and Fair Finvest Ltd. on the facts of the appellant's case 7. That on the facts and in the circumstances of the case and in law, whether the Assessing Authority had acted on his own belief regarding the escapement of income or on the borrowed opinion of directorate of investigation about escapement 3. The brief facts of the case are that the assessee filed original return of income on 30.10.2002 declaring income of Rs.72,97,625/-. Assessment in the case was made u/s. 143(3) of the I.T. Act on 30.12.2004 on total income of RS. 73,88,130/-. Subsequently, on the basis of information received from the Directorate of Investigation it was stated that the assessee’s income had escaped assessment to the extent of Rs. 15,00,000/-. Accordingly, proceedings u/s. 147 of the Act was initiated by the AO and to this effect a notice u/s. 148 of the Act was issued to the assessee on 30.3.2009. The assessee vide its reply dated 16.4.2009 submitted that return filed by it earlier may be treated as return filed in compliance to notice u/s. 148 of the Act. Statutory notice u/s. 143(2) was issued and served and in response thereto assessee’s authorized representative attended the assessment proceedings and during the assessment proceedings AO noticed that the accommodation entries in the garb of share application money. Thus, the assesse has introduced its own undisclosed income in its books of accounts routing it through the entry providers. Hence, an amount of Rs. 15 lacs shown by the assessee as share application money received from various parties was treated as assessee’s undisclosed income an accordingly the same was added u/s. 68 of the Act and completed the assessment at Rs. 88,88,130/- u/s. 147/143(3) of the Act vide order dated 24.12.2009.
4. Against the Order of the Ld. AO, assessee appealed before the Ld. CIT(A), challenging the validity of reassessment as well as the additions in dispute who vide impugned order dated 16.7.2013 has dismissed the appeal of the assesseee.
Aggrieved with the aforesaid order of the Ld. CIT(A), Assessee is in Appeal before the Tribunal.
At the time of hearing, Ld. Counsel of the assessee has 6. only argued the legal ground challenging the validity of reopening u/s. 148 of the I.T. Act by stating that action of the Assessing Officer is illegal, because the same is lacking tangible material / reasonable cause and justification. The action of the Revenue Authorities is in absence of nexus between alleged information and tentative inference; non application of mind much less independent application of mind; total lack of clarity on nature of transaction in reasons recorded. He further submitted that the present case is squarely covered by the Hon’ble High Court Decision dated 8.10.2015 passed in in the case of Pr. CIT-4 vs. G&G Pharma India Ltd., wherein the Tribunal’s decision dated 9.1.2015 has been followed. In this behalf, he filed the copy of the order dated 8.10.2015 of the Hon’ble High Court of Delhi in Pr. CIT vs. G&G Pharma India Ltd. Therefore, he requested that by following the decision in the case of Pr. CIT vs. G&G Pharma India Ltd., the legal ground raised by the Assessee in the present appeal may be allowed.
On the contrary, Ld. DR relied upon the order passed by the CIT(A) on issue of validity of reopening and stated that Ld. CIT(A) has rightly upheld the action of the AO of reopening.
We have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities and the case law cited by the assessee’s counsel on the issue in dispute. In our view, it is very much necessary to reproduce the reasons recorded by the AO before issue of Notice to the Assessee u/s. 148 of the I.T. Act, 1961 which is reproduced hereunder:-
“F.No. DCIT Cir.14(1)/148/2009-10/144
Office of the Asstt. Commissioner of Income Tax Circle 14(1), New Delhi
Dated : May 13, 2009 The Principal Officer, M/s Pankaj Gas Cylinders Ltd., 138, UGF, World Trade Centre Babar Road, New Delhi – 110 001 Sir, Sub:- Notice u/s. 148 of the Income Tax Act, 1961 for the asstt. Year 2002-2003 – Intimation of reasons for reopening the case – Regarding Please refer to your letter No. Nil dated 16th April, 2009, on the above mentioned subject. As requested, the reasons for issuing the notice u/s. 148 is furnished as under:-
“In this case, assessment u/s. 143(3) of the Income Tax Act, 1961 was completed on 30.12.2004 at an income of Rs. 73,88,130/-.
Subsequently, Information was received from the Directorate of Investigation Wing that certain persons were indulged in providing accommodation entries/ bogus share application money / bogus capital gain. In the course of enquiries before the Investigation Wing these persons had provided the details various persons to whom such accommodation / bogus entries were provided. Based on the enquired made, the Directorate of Investigation has provided the details of persons who were beneficiaries / entry operators of such accommodation / bogus entries in Delhi in the last 5-6 years.
The investigation wing on the basis of enquiries conducted / information collected has sent the name and address and bank account of the beneficiary and the value of entry taken from different persons giving the accommodation entry. The names of entry giver and bank accounts through which the entry was given has also been informed by the Investigation Wing. One such beneficiary is M/s Pankaj Gas Cylinder Ltd. As per the report of the Inv. Wing, M/s Pankaj Gas Cylinder Ltd., had received accommodation entry amounting to Rs. 15,00,000/-, in the FY 2001-02 relevant to AY 2002-03 under the garb of share application money/ share capital.
In views of the above discussion, I have reason to believe that income at least to the extent of Rs. 15,00,000/- for the assessment year 2002-03 had escaped assessment within the meaning of provisions of section 147(c) of the I.T. Act, 1961. To assess this escaped income, proceedings u/s. 147 of the Income Tax Act, 1961 are initiated.”
Yours faithfully, Sd/- (S.B. Singh) Asstt. Commissioner of Income Tax Circle 14(1), New Delhi” 8.1 After going through the reasons recorded by the AO, we are of the view that AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. Our view is supported by the following judgment/decision:-
Pr. CIT vs. G&G Pharma India Ltd. in dated 8.10.2015 of the Delhi High Court wherein the Hon’ble Court has adjudicated the issue 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.
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 analysing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity .
In the circumstances, the conclusion reached by the ITAT cannot be said to be erroneous. No substantial question of law arises.
The appeal is dismissed.”
In view of above, we are of the considered view that the aforesaid issue in dispute is exactly the similar and identical to the issue involved in the present appeal and is squarely covered by the aforesaid decision of the Hon’ble High Court of Delhi in the case of G&G Pharma (Supra). Hence, respectfully following the above precedent in the case of Pr. CIT-4 vs. G&G Pharma India Ltd. (Supra) we decide the legal issue in dispute in favor of the Assessee and against the Revenue and accordingly quash the reassessment proceedings and allow the legal issue in dispute raised by the Assessee in its Appeal. Since we have quashed the reassessment proceedings, as aforesaid, the other issues are not being dealt with.
In the result, Assessee’s appeal is allowed.
Order pronounced in Open Court on this 03-05-2016.