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Income Tax Appellate Tribunal, DELHI BENCH SMC-I NEW DELHI
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
This appeal has been filed by the assessee against the order dated 25.11.2013 of Ld. CIT(A)-XI, New Delhi for Assessment Year 2005-06 on the following grounds of appeal:-
“That on the facts and circumstances of the case, the learned ITO & CIT(A) erred in:
(a) Assuming jurisdiction u/s 148 of the IT Act 1961 in the absence of relevant information with him leading to formation of belief that the income had escaped assessment. (b) Making an addition of Rs.10,01,045/- in the returned income of the Assessee Company by treating the amount of share application money as accommodation entries amount.
Assessment Year: 2005-06
(c) Ignoring the fact that shareholder Companies have been struck of the records of Registrar of Companies but still the confirmations of its then directors dated 12.02.2013 is on records. (d) Ignoring the fact the shareholder's existence at the time of remittance of share application money, the allotment of shares and confirmation of the above given by the directors of the defunct shareholder Company on 12.02.2013 has been on records. (e) That since the shareholders were not present in person before the AO, the share application money amount cannot be treated as income by the Learned AO. (f) That Assessee discharged its onus by providing the addresses of the then directors of the defunct investee companies but since the Assessee has no authority/ power/ rights to force any person/ entity to comply with the proceedings initiated by the Income Tax Department, doesn't make Assessee liable for any penal actions.”
In ground No. 1(a), validity of assessment framed under sec. 147 of the Income-tax Act, 1961 has been questioned. We thus prefer to adjudicate upon this ground first.
The assessee had filed its return of income at Rs. 3,15,000/-
initially on 15.06.2005. Subsequently, on the basis of information received from DIT (Inv), New Delhi, the Assessing
Officer initiated proceedings under sec. 147 of the Income-tax
Act, 1961 and being not satisfied with the explanation of the assessee regarding entries of Rs. 10,01,045/- from State Bank of Bikaner & Jaipur, New Rohtak Road of M/s Tosha Chemicals and VR Traders Pvt. Ltd., added the said amount in the total 2 Assessment Year: 2005-06 income of the assessee. Before the Ld. CIT(A), the assessee had raised objection against the validity of initiation of reopening proceedings but could not succeed. Hence, the same has been questioned before the ITAT.
In support of the ground on the issue, the Learned AR submitted that the reasons recorded under sec. 148(2) of the Income-tax Act, 1961 in the present case are based on “borrowed satisfaction” of DIT (Inv), New Delhi, hence, the very initiation of proceedings under sec. 147 of the Act is bad in law.
4.1 The Learned AR contended further that there was no application of his own mind by the Assessing Officer for formation of belief himself that income had escaped assessment as it is very much evident from the reasons recorded that his action was solely based upon the information received from the Investigation Wing.
4.2 In support, the Learned AR referred the contents of the reasons recorded and reproduced at page No.1 of the assessment order. He pointed out that the reasons recorded alleged that an amount of Rs.6,00,600/- has escaped assessment, whereas the addition has been made for Rs.10,01,045/-. Assessment Year: 2005-06 4.3 The Learned AR submitted that there was no application of mind by the Assessing Officer is evident from the telltale evidence on record. In support of his contentions, the Learned AR placed reliance on the following decisions as well:
Andaman Timber Ind. Vs. CIT - Civil Appeal No. 4228 i) of 2006 - order dated 02.09.2015 (S.C);
PR. CIT vs. G&G Pharma India Ltd. - ITA 545/2015 - ii) order dated 08.10.2015 (Del.);
The Learned Senior DR on the other hand tried to justify the orders of the authorities below on the issue. He submitted that in the reasons recorded, specific information was there against the assessee and the Assessing Officer had applied his mind before recording of reasons. The Learned Senior DR contended that sufficiency of application of mind is not required to be considered at the stage of recording of reasons.
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 Assessment Year: 2005-06
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 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 5 Assessment Year: 2005-06 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.”
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 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 his mind.
The reasons recorded in the present case by the Assessing Officer Assessment Year: 2005-06 for the purpose are being reproduced hereunder:
“Information has been received from DIT(Inv), New Delhi that M/s Sehrawat Associates (P) Ltd.. New Delhi has been beneficiary of accommodation entries being provided by certain entry operators. On the basis of the information chart forwarded by the DIT(Inv.) New Delhi it is seen that the assessee is involved in the following bogus transactions detailed in the chart forwarded by the DIT(Inv.) New Delhi.
Beneficiary name M/s Sehrawat Associates (P) Ltd. Beneficiary bank name State Bank of Bikaner & Jaipur Beneficiary bank branch Value of entry taken Rs. 10,01,045/- Instrument No. by which Transfer Chq. 00204342. Transfer entry taken Chq. 00761046, Transfer Chq. 00761077 Date on which entry taken 31.05.2004, 31.05.2004, 02.06.2004 Name of account holder of Tosha Chemical, V R Traders Pvt. Ltd., entry giving account V R Traders Pvt. Ltd. Name of entry given bank SBBJ, New Rohtak Road Account No. entry giving 21782, 21781 account
I have, therefore reason to believe that an amount of Rs. 6,00,000/- has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961.
Since 4 years have been elapsed, the facts are submitted for your kind perusal and approval of the Addl./Jt. CIT, Range-8, New Delhi as per section 151(2) of the Income Tax Act, 1961 for issuance of notice u/s 148 of the Income Tax Act.”
The very perusal of the reasons, it is apparent that these were based on the information received from DIT(Inv), New Delhi after narration of which, the Assessing Officer has simply recorded Assessment Year: 2005-06 that he had reason to believe that amount/income of Rs. 6.06 lacs has escaped assessment for the assessment year 2005-06 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 unaccounted money in its bank by way of accommodation entries. The basic requirement I.T.A. No. 665/D/2014 Assessment Year: 2005-06 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 the Investigation Wing and without making any exercise of his mind on those information to form his own reasons to believe for the escaped assessment of Rs. 6.06 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 his 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 Assessment Year: 2005-06 question is thus held as void-ab-initio. The ground No. 1 (a) is accordingly allowed.
In view of the above findings, holding the very assessment order in question as void, the issue raised in the remaining grounds questioning the validity of addition of Rs.10,01,045/- made by the Assessing Officer have become infructuous. These grounds are accordingly disposed of.
In result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 15th of March, 2016.