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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: SHRI J. SUDHAKAR REDDY & MS. SUCHITRA KAMBLE
Appellant by : None Respondent by : Sh. Saurabh Goel, C.A. ORDER PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
This is an appeal filed by the Revenue directed against the order dated 22.11.2010 of Ld.CIT(A)-IV, New Delhi pertaining to the Assessment Year (hereinafter referred to as the A.Y.) 2004-05. The assessee has filed the Cross Objection. 1.1. Both the assessee as well as the Revenue sought adjournments in the matter. This case is coming up before the Bench from July,2011. On number of occasions both the assessee as well as the Revenue sought ITA 470/Del/2011 C.O. 55/Del/2011 (In ITA 470/Del/11) Care Traders P.Ltd. adjournments on various grounds. Both were informed that the adjournments will not be granted as sufficient opportunities were granted to both the parties. 1.2. None represented the Revenue and hence we dispose the same ex parte after hearing Shri Saurabh Goel, the Ld.Counsel for the assessee.
On a careful consideration of the facts and circumstances of the case we hold as follows.
The A.O. in this case has reopened the assessments based on receipt of certain information from Investigation Wing. The Ld.CIT(A) at para 10 has held as follows. “10. I have gone through the order of the Ld. AO and the submissions of the Ld.AR of the assessee. Despite my requisition, and sending a messenger from this office, I have not had the privilege of perusing the assessment record. There is no doubt that the original order was only processed u/s 143(1). It was not scrutinized u/s 143(3). Thus, the Ld. AO did not have the opportunity to form an opinion on the return of income originally filed by the assessee as held in CIT Vs Gujarat Electricity Board [2003] 260 ITR 84 (SC), MTNL Vs. Chairman CBDT [2000] 246 ITR 84 (Delhi), ACIT Vs Rajesh Jhaveri Stock Brokers Pvt. Ltd. [2007] 291 ITR 500 (SC) and Rakesh Aggarwal Vs. ACIT [1997] 225 ITR 496 (Delhi.). Thus, there can be no quarrel that the notice u/s 148 was issued, per-se.
The issue which needs to be determined, at the very outset, is whether there was sufficient material and independent application of mind by the Ld. AO on the information received by him. Even though I have not had access to the assessment record, the impugned order clearly suggest that information was received from the Investigation Wing of the Department which indicated that there were certain entities who had provided accommodation entries to certain parties. Evidently, the assessee was one of the beneficiaries persuading the AO to issue notice u/s 148. For this purpose, it may be relevant to extract the relevant portion of the impugned order as under:
"The return of income was filed on 31.10.2004 declaring loss of Rs. 3,27,483/-. The return was processed u/s 143(1) of the I. T. Act on 6.1.2006. The return was processed u/s 143(1) OF THE i. t. Act. A report of the Investigation Wing of Income Tax Department intimated that certain persons are engaged in the providing accommodation entries to the various persons.
ITA 470/Del/2011 C.O. 55/Del/2011 (In ITA 470/Del/11) Care Traders P.Ltd. Following this the statement of such persons providing accommodation entries has been recorded on oath by the investigation wing of Income Tax Department, New Delhi on various dates & copies of which were forwarded to this office also. Some of persons engaged in providing accommodation entries were Shri Mahesh Garg & others. Statement on oath of these persons had also been forwarded to this office. These entry operators had categorically admitted that they were instrumental in providing the accommodation entries & their statements are self explanatory. The investigation wing after completing the investigation analyzed the information collected by it from various sources including banks and such entry operators. In light of these observations the case of assessee was re-opened and notice u/s 148 was issued to the assessee for A. Y. 2004-05 on 20.9.2006 after recording the reasons of re-opening. The assessee filed the letter dated 23.5.2007 requesting that the return of income filed on 30.10.2004 be treated as return filed u/s 148 of I. T. Act." (emphasis, in bold, assigned)
From a plain reading of the relevant extracts of the impugned order, it is not very difficult to discern that soon after the Ld. AD received the information from the Investigation Wing, he proceeded to initiate proceedings u/s 148 of the Act. In other words, there was no independent application of mind by the Ld. AO of the veracity of information received by him. This issue is very important within the framework of 'reasons to believe". The scope of the provisions of section 147 of the Act has bee analyzed by the Delhi High Court in United Electrical Co (P) Ltd. Vs. CIT (2002) 178 CTR (Del) 192 wherein it has been observed as under: "Sec. 147 of the Act authorized the A 0 to assess or reassess income chargeable to tax, if he has reason to believe that the said income for any assessment year has escaped assessment. The power conferred under the said section, particularly after t" April, 1989, is no doubt very wide but it cannot be said to be plenary. True, the amended provisions of s. 147 are contextually different from the pre-11989 provision, inasmuch as the cumulative conditions spelt cut in cl.(a) of old s. 147 namely, that income chargeable to tax had escaped assessment by reason of: (i) omission or failure on the part of the assessee to make a return of his income under s. 139 of the Act for any assessment, or (ii) failure to disclose fully and truly all material facts necessary for his assessment for that year, are not present in the main section but the crucial expression 'reason to believe' still exists in the new provision. The amended s. 147provides that where the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may apply the provisions of ss. 148 to 153 and assess or reassess the income which has escaped assessment. For the present purpose, only ss. 148 to 151 are relevant. Sub-s.(2) of s. 148 of the Act mandates that before issuing notice to the assessee under sub-s.(1), for filing
ITA 470/Del/2011 C.O. 55/Del/2011 (In ITA 470/Del/11) Care Traders P.Ltd. the return, the AO shall record his reasons for doing so. Therefore, formation of reason to believe and recording of reasons are imperative before the AO care open the completed assessment. Proviso to sub-s.(1) of s. 151 of the Act provides that after the expiry of four years from the end of the relevant assessment year, notice under s. 148 shall not be issued unless the Chief CIT or the CIT, as the case may be, is. satisfied, on the reasons recorded by the AO code med, that it is a fit case for the issue of such notice. These are some inbuilt safeguards to prevent arbitrary exercise of power by an AO to fiddle with the completed assessment. Thus, existence of tangible material, for the information of opinion is a prerequisite for initiation of action under s. 147 of the Act. Therefore, what s.147 of the Act postulates is that the AO must have reason to believe that income has escaped assessment. There should be facts before him that reasonably given rise to the belief, but the facts on the basis of which he entertains the belief need not at this stage be rebuttably conclusive to support his tentative conclusion. In case of challenge, it is open to the Court to examine whether there was material before the AO, having rational connection or relevant bearing to the formation of the belief that is claimed to have been held at the time when he issued the notice. But the Court cannot for the purpose of ascertaining validity of the notice examine the sufficiency of the reasons for the belief in S. Narayanappa & Ors. Vs. CIT (1967) 63 ITR 219 (SC). (emphasis, in bold, assigned)
The above decision was followed in Commissioner of Income Tax Vs. Vardhman Estates Ltd. (2007) 165 Taxman 473 (Del). In that case the assessee had filed return declaring income of Rs.23,552/- which was accepted u/s 143(1) of the Act. Subsequently, the AD took proceedings u/s 147 of the Act and issued the notice u/s 148 to the assessee on the basis of a statement of one Sh. V.K. Jain who had stated that his company M/s Visa Fin Cap (P) Ltd. were not giving genuine loans. However, the name of the assessee was not mentioned in the statement recorded from Sh. V.K. Jain, Director of M/s Visa Fin Cap (P) Ltd. In para NQ. 13, the Hon'ble Delhi High Court has held as under:- "13. The present case is fully covered by the earlier decision of this Court in United Electrical Co. (P) Ltd. 's case (supra). In the instant case also, there is no mention of any name much less the name of the present assessee in the statement of Sh. V. K. Jain and as such we have no hesitation in holding that the reassessment proceedings under s. 147 of the Act were not initiated in accordance with law and we have no reason to disagree with the reasoning given by the Tribunal.
14. No substantial question of law arises for our consideration in the present
ITA 470/Del/2011 C.O. 55/Del/2011 (In ITA 470/Del/11) Care Traders P.Ltd. case and the present appeal, is hereby, dismissed with costs of Rs. 5, 000/- which should be deposited by the appellant within four weeks with the Delhi High Court Legal Services Committee."
In CIT Vs. Atul Jain (2008) 299 ITR 383 (Delhi), the Hon'ble jurisdictional High Court was again considering the issue of bogus/accommodation entries. Commenting on satisfaction note recorded at page 388 the Hon'ble High Court held as under.
Looked at in the light of the decisions placed before us and the law teto down therein, it is necessary to appreciate the information available with the Assessing Officer in the present case. The only information is that the assessees had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque of that amount. The information does not indicate the source of the capital gains (which in this case are shares). We do not know which shares have been transacted and with whom has the transaction taken place. There are absolutely no details available and the information supplied is extremely scanty and vague. In so far as the basis for the reasons is concerned, even this is absent. The Assessing Officer did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The Assessing Officer has not even recorded his satisfaction about the correctness or otherwise of the information or his satisfaction that a case has bee made out for issuing a notice under section 148 of the Act. Read in this light, what has been recorded by the Assessing Officer as his reasons to believe" is nothing more than a report given by him to the Commissioner of Income-tax. As held by the Supreme Court in Chhugamal Rajpal (1971) 79 ITR 603, the submission of a report is not the same as recording of reasons to believe for issuing a notice. The Assessing Officer has clearly substituted form for substance and, therefore, the action of the respondent falls foul of the law laid down by the Supreme Court in Chhugamal Rajpal (1971) 79 ITR 603 which is clearly applicable to the facts of these appeals.”
As it appears from the reading of provisions of section 147 and the cases on bogus entry, it is evident that there is no doubt that there was an allegation of the assessee obtaining the bogus/accommodation entries. However, it is crystal clear that the satisfaction note, as recorded, is nothing but a mechanical belief in the report submitted by the Investigation Wing. Details of enquiries as alleged to have been conducted by Id. AO has also not been recorded. Furthermore, the statements relied upon by the Investigation Wing have also not directly alleged that the assessee was a beneficiary of the accommodation entries. When challenged during the assessment proceedings,
ITA 470/Del/2011 C.O. 55/Del/2011 (In ITA 470/Del/11) Care Traders P.Ltd. the AO has opted to keep quiet on the issue. Most significantly the <;.;has not even recorded his satisfaction about the correctness or otherwise of the information received from the Investigation Wing.
Considering the above decision and the facts on law, it is crystal clear that while reopening the assessment, the Ld. AO did not even make a preliminary enq on the veracity of the report filed by the Investigation Wing, which had been forwarded to him. The statements relied upon are general in nature as admitted by the AO himself. The Income Tax Return, as originally filed by the assessee, if any, has also not been perused by the Ld. AO. Still he decided to initiate proceedings u/s 148 of the Act. This to my mind is incorrect and not in accordance with the provisions of Section 147 read with Section 148 of the Act.”
The order of the Ld.CIT(A) is in consonance with the decision of the Jurisdictional High Court in the case of Principal Commissioner of Income Tax vs. G&G Pharma India Ltd. in vide order dt. 8.10.2015 wherein at paras 12 and 13 it was held as follows. “12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10 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 ITA 470/Del/2011 C.O. 55/Del/2011 (In ITA 470/Del/11) Care Traders P.Ltd. 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 .”
Thus, we uphold the order of the First Appellate Authority and dismiss this appeal of the Revenue.
As we have held that the reopening is bad in law due to non application of mind by the A.O. we do not adjudicate other issues raised by the Ld.Counsel for the assessee, as it would be an academic exercise.
In the result Revenue’s appeal as well as assessee’s Cross Objection both are dismissed. Order pronounced in the Open Court on 26th April, 2016.