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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ NEW DELHI
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
This appeal has been filed by the assessee against the order dated 27.05.2013 of Ld. CIT(A)-XXXIII, New Delhi for Assessment Year 2004-05 on the following grounds of appeal:-
1. That on thefacts 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 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.
Assessment Year: 2004-05 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.25 lacs made by Assessing Officer u/s 68 of the Income Tax Act,1961.
3.1 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.25lacs 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.
The appellant craves permission to add, amend, alter or vary all or any grounds of appeal
on or before the date of hearing of the appeal.”
2. In ground Nos. 1 and 2, validity of assessment framed under sec. 147 of the Income-tax Act, 1961 has been questioned. We thus prefer to adjudicate upon these grounds first.
3. The assessee had filed its return of income at Rs. 21,168/-
initially on 21.10.2004. Subsequently, on the basis of information received from ACIT, Central Circle-19, New Delhi in March 2011, 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. 25 lacs from Federal Bank Account of M/s. Chanderprabhu
Financial Services added the said amount in the total income of Assessment Year: 2004-05 the assessee. Before the Assessing Officer, the assessee had raised objection against the validity of initiation of reopening proceedings but could not succeed. It raised this issue again before the Learned CIT(Appeals) but the Learned CIT(Appeals) has also decided the issue against the assessee, hence, the same has been questioned before the ITAT.
4. 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 a colleague ACIT, Central Circle-19, 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 her own mind by the Assessing Officer for formation of belief herself that income had escaped assessment as it is very much evident from the reasons recorded that her action was solely based upon the information received from her colleague. 4.2 In support, the Learned AR referred the contents of the reasons recorded and reproduced at page No.2 of the assessment order.
Assessment Year: 2004-05 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. While the reasons were recorded on the belief that Chanderprabhu Finance Services (P) Ltd./Chanderprabhu Financial & Security Ltd. deposited Rs. 25 lacs which was construed/conceived to be in the nature of income by labelling it as an accommodation entry, the facts are altogether different in as much as the sum of Rs. 25 lacs was the sale proceeds of 2,50,000 shares of KKP Construction Ltd. @ Rs. 10 per share. The transaction was not a deposit by Chanderprabhu Financial Services Pvt. Ltd. but was the sale proceeds in respect of the sale of shares. He also referred to the objections raised by the assessee against the initiation of the proceedings under sec. 147 of the Act before the Assessing Officer. 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.); USG Buildwell Pvt. Ltd. vs ACIT – 4517/Del/2013 ITAT Delhi ‘H’ Bench
The Learned Senior DR on the other hand tried to justify the orders of the authorities below on the issue. She submitted that in the reasons recorded, specific information was there against the assessee and the Assessing Officer had applied her 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 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 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 6 Assessment Year: 2004-05 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 her mind.
The reasons recorded in the present case by the Assessing Officer for the purpose are being reproduced hereunder:
Assessment Year: 2004-05 “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 ultimately- transferring same to the bank accounts of tire beneficiaries to give the color of genuineness to these transactions.
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 & securities Ltd., a shell company/concern floated/controlled by Shri S.K. Gupta.
In view of the above, I have reason to believe that 4. 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.
Issue notice u/s. 148 of the Income-tax Act, 5. 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 Assessment Year: 2004-05 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 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 Assessment Year: 2004-05 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.
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.25 lacs 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 11th of March, 2016.