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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 27/02/2014 of the C.I.T.(A)-XXXIII, New Delhi. Following grounds have been raised in this appeal : “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 2 Vasundra Promoters Pvt. Ltd. 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. 9 Lacs made by Assessing Officer u/s 68 of the Income Tax Act, 1961.
4. 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. 9 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.”
2. From the above grounds it is gathered that main grievance of the assessee relates to the validity of reopening u/s 147 of the Income Tax Act, 1961 (hereinafter referred as the Act).
Facts of the case in brief are that the assessee filed the return of income on 26.10.2004 declaring an income of Rs. 91,954/-. Subsequently the AO received the information from the ACIT Central Circle-19, New Delhi in March, 3 Vasundra Promoters Pvt. Ltd. 2011 that the assessee had received accommodation entries of Rs. 9,00,000/- from Federal Bank Account of M/s. Chander Prabhu Financial Services which is a shell company floated/ controlled by Sh. S.K.Gupta, during the financial year 2003-04 relevant to the assessment year under consideration. The AO thereafter initiated the proceedings u/s 147 of the Act. In response of the said notice, the assessee filed the return of income on 25.4.2011 declaring the same income which was disclosed in the original return filed on 4.10.2004. The assessee also filed objection on 5.9.2011 against the initiation of proceedings u/s 147 of the Act but the same were rejected by the AO. Thereafter, the AO framed assessment by making addition of Rs.9,00,000/-, at an income of Rs. 9,90,950/-.
4. Being aggrieved the assessee carried the matter to the ld. CIT(A) and challenged the validity of initiation of the proceedings u/s 147 to the Act. However, the Ld. CIT(A) did not find merit in the submissions of the assessee and upheld the proceedings u/s 147 of the Act. Now the assessee is in appeal.
4 Vasundra Promoters Pvt. Ltd.
Ld. Counsel for the assessee at the very outset stated that this issue is squarely covered in favour of the assessee vide order dated 11 March, 2016 of the Co-ordinate Bench i.e. ITAT Delhi G Bench, New Delhi in the case of Sunaina Towers Pvt. Ltd. vs. ACIT Central Circle-23, New Delhi in for the assessment year 2004-05 copy of the said order was furnished. It was stated that the facts of the present case are identical to the facts involved in the aforesaid case, the only difference is that in the said case the addition made was of Rs. 25,00,000/- while in the assessee’s case the addition made in the similar circumstances was of Rs. 9,00,000/-. In his rival submissions, the Ld. DR strongly supported the orders of the authorities below and also stated that the facts of the present case are distinguishable from the facts involved in the case of M/s Sunaina Towers Pvt. Ltd. vs. ACIT (Supra).
We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that an identical issue having similar facts was involved in ITA No. 4514/Del/2013 for the assessment year 2004-05 in the case of M/s. Sunaina Towers Pvt. Ltd. vs. ACIT Central Circle-23, New Delhi which has 5 Vasundra Promoters Pvt. Ltd. been adjudicated by the ITAT Delhi Bench G New Delhi vide order dated 11 March, 2016 and the relevant findings have been given in para 6 to 8 of the said order which read as under :
6. Having gone through the above cited decisions, especially the recent decisions of Hon’ble jurisdictional High Court of Delhi in the case of CIT vs. G&G Pharma India Ltd. (supra), we find that the Hon'ble High Court after detailed discussion on the issue and after discussing several decisions cited before the Hon’ble Court has been pleased to come the following conclusion vide para Nos. 12 and 13 of the decision, which are relevant to adjudicate upon the issue raised before us in the present case, are being reproduced hereunder: “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 entries which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the A.O. 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 A.O. 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 A.O., 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 6 Vasundra Promoters Pvt. Ltd. was filed on 14th November 2004 and was processed under sec. 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the A.O. 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 Hon'ble Supreme Court in the decisions discussed hereinbefore, the basic requirement that the A.O. 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 Learned CIT(Appeals) 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 A.O. has to apply 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 circumstances, the conclusion reached by the ITAT cannot be said to be erroneous. No substantial question of law arises.”
7. Now, we have to examine the reasons recorded in the present case before us in view of the ratios laid down in the above cited decision of the Hon'ble jurisdictional High Court recently pronounced on 08.10.2015 to verify the contention of 7 Vasundra Promoters Pvt. Ltd. the Learned AR that while forming the belief that income chargeable to tax has escaped assessment on the basis of information received by it, the Assessing Officer has not applied her mind. The reasons recorded in the present case by the Assessing Officer for the purpose are being reproduced hereunder:
“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, Arunachal Building, 19-Barakhamba Road, New Delhi-1100 01 and 1007-1008, Arunachal Building, 19- Barakhamba Road, New Delhi-1100 01. During the course of survey proceedings several ledger accounts maintained in Tally for the F.Y. 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/concerns 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 the these shell companies/concerns. Then he used to route the entries through two to four accounts of these shell companies/concerns before ultimatelytransferring same to the bank accounts of tire beneficiaries to give the color of genuineness to these transactions.
3. Further, as per the information received from the ACIT, Central Circle-19, New Delhi, M/s. Sunaina Towers Pvt. Ltd. has received amount of Rs.25,00,000 vide cheque no. 778926 dated 10.10.2003, from the Federal Bank account of M/s. Chanderprabhu Financial Services/Chanderprabhu Finance 8 Vasundra Promoters Pvt. Ltd. & securities Ltd., a shell company/concern floated/controlled by Shri S.K. Gupta.
In view of the above, I have reason to believe that amount/income of Rs.25,00,000 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 Income- tax Act, 1961.
5. Issue notice u/s. 148 of the Income-tax Act, 1961.”
The very perusal of the reasons, it is apparent that these were based on the information received from ACIT, Central Circle-19, New Delhi after narration of which, the Assessing Officer has simply recorded that she has reason to believe that amount/income of Rs.25 lacs has escaped assessment for the assessment year 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 sec. 147 of the Income-tax Act, 1961. Notice under sec. 148 of the Act has accordingly been issued by the Assessing Officer. In the above cited decisions of the Hon'ble High Court, it has been observed by the Hon'ble High Court that such type of conclusion is unhelpful in understanding whether the Assessing Officer had applied his mind to the materials that he talks about particularly since he did not describe what those material were. Hon'ble High Court has observed further that once the date on which the so-called accommodation entries were provided is known, it would not have been difficult for the Assessing Officer, 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. It was held that without forming a prima facie opinion, on the basis of such material, it was not possible for the Assessing Officer to have simply concluded, “it is evident that the assessee company has introduced its own 9 Vasundra Promoters Pvt. Ltd. unaccounted money in its bank by way of accommodation entries. The basic requirement is that the Assessing Officer must apply his mind to the material in order to form reasons to believe that the income of the assessee has escaped assessment. Such basic requirement while recording the reasons for initiation of proceedings under sec. 147 of the Act is missing in the present case before us. As it is evident in the reasons recorded, reproduced hereinabove, the Assessing Officer has simply recorded the information received from her colleague and without making any exercise of her mind on those information to form her own reasons to believe for the escaped assessment of Rs.25 lacs, has issued notice under sec. 148 of the Act. We, respectfully following the ratios laid down by the Hon’ble jurisdictional High Court of Delhi in the case of CIT vs. G&G Pharma India Ltd. (supra), hold that the reasons to believe recorded by the Assessing Officer in the present case to initiate the proceedings under sec. 147 of the Act without application of her own mind on the information received were not as per the requirement of the provisions of the law laid down under sec. 147 of the Act, hence, the initiation of the proceedings was not valid and nor the assessment made in furtherance to the said initiation of the proceedings. The assessment framed under sec. 147 read with 143(3) of the Act in the present case in question is thus held as void-ab- initio. The ground Nos. 1 and 2 are accordingly allowed.”
7. Since the facts involved in the present case are identical to the facts involved in the case of M/s Sunaina Towers Pvt. Ltd. vs. ACIT (Supra), so respectfully following the order dated 11 March, 2016 in for the 10 Vasundra Promoters Pvt. Ltd. assessment year 2004-05 the initiation of the proceedings u/s 147 of the Act in the assessee’s case is held to be invalid and the assessment framed thereafter u/s 143(3) read with section 147 of the Act is quashed.
In the result appeal of the assessee is allowed. (Order Pronounced in the Court on 28/04/2016).