M/S SHIVAM SOFTECH LTD.,,NEW DELHI vs. ITO, NEW DELHI

Date of hearing 10.02.2016 Date of pronouncement 09 .03.2016 ORDER PER O.P. KANT, A.M.:

These two appeals of the assessee are directed against the two separate orders of the Ld. CIT(A)-XI, New Delhi, dated 25/01/2011 and 14/06/2013 . The first appeal is against sustainence of findings made in the assessment order u/s 143(3) / 147 the Act and the second Appeal is against sustainence of the penalty levied u/s 271(1)(c) of the Act. Both the appeals pertain to the same assessment year, and thus heard together and are disposed off by this consolidated order for sake of convenience and brevity.

“1. On the facts and in the circumstances of the case, the CIT(A)-XI, New Delhi has erred both on facts and in law, in upholding the illegal action of re-assessment and assumption of jurisdiction illegally by the Respondent and not as per the provisions of section 147 to 151 of the Income Tax Act apart from being barred by limitation and the impugned assessment order is liable to quashed as unsustainable, both on facts and in law.

5. Ld. CIT(A) erred in upholding the illegal additions of Rs. 1,00,000/- u/s 68 by treating unexplained income by the Respondent as justified ignoring the fact that the amount was received on account of sale of shares and also ignoring the records, documents and explanation already filed before the ITO which were not properly verified and accepted by him. Hence, the order may be vacated and demand may be deleted.

6. Ld. CIT(A) has also erred in upholding the illegal additions and disallowances and consequent demands of Income Tax, Interest and penalties illegally raised by the Respondent and hence the impugned order sustaining the additions and demand would require to be set aside and quashed to that extent.

7. The appellant craves leave to raise further/ additional grounds and documents and file paper book before the hearing of the appeal and prays for the appeal to be allowed after hearing both side.”

31.10.2002 declaring an income of Rs. 2,170/- and the case was processed u/s 143(1) of the Act. Subsequently, on receipt of information from the Director of Income Tax (Investigation), New Delhi that the assessee was a beneficiary of accommodation entries / bogus transaction from two parties namely M/s Arpit Sales Corporation & M/s. Harish Kumar & Sons (HUF), the Assessing Officer (AO) re-opened the case of the assessee by way of issuing a notice u/s 148 of the Act on 20.03.2009. The assessee was provided a copy of information received from the Director of Income Tax (Investigation) and then the assessee was asked to prove the genuineness of the amount received from the said two parties. As noticed by the ld. CIT(A), the assessee was granted several opportunities by the AO but no documents in support of identity of the parties, genuineness of the transactions or creditworthiness of those parties were filed before the AO. The Assessing Officer collected copies of bank statement of those two parties from the banks and found that cash was deposited in their bank accounts just before issue of cheques to the assessee and in absence of any explanation from the assessee in this respect , he held that the assessee obtained cheques in lieu of the cash amount paid to those parties and, accordingly he made an addition of Rs. 2,00,000/- for unexplained cash credit received in the name of M/s Harish Kumar & Sons (HUF) and an addition of Rs. 1,00,000/- for unexplained cash credit received in the name of M/s. Arpit Sales Corporation. appeal before the ld. CIT(A), raising the issue of jurisdiction for issuing notice u/s 148 of the Act as well as merit of the addition of Rs. 3,00,000/-. The ld. CIT(A) after dealing with the submission of the assessee upheld the validity of the action u/s 148 of the Act as well as the addition on merit. Aggrieved, the assessee is before the Tribunal.

On the other hand, the ld Senior Departmental Representative (Sr DR) relying on the order of the ld. CIT(A), submitted that reasons have been recorded in accordance with the provisions of the Act and sufficiency of the reasons cannot be questioned by the assessee . In support of the proposition, he relied on the judgment of the Hon’ble Supreme High Court in the case of Raymond Woollen Mills 236 ITR 34.

The ld. CIT(A) has dealt various legal issues raised in respect of the jurisdiction as under :

“3.0 Justification for re-opening assessment :- The first issue to be considered is whether the AO could lawfully assume jurisdiction to re- open the assessment u/s 147 of the Act. Since the initial assessment was made u/s 143(1) of the Act, the proviso to section 147 of the Act for such re-opening would not come into play for the period under consideration. 3.1 It is not necessary to refer to the submission made by the Ld. AR again on this issue. Since the law is well settled. It cannot be disputed that the assessment in such case [in case of 143(3) cannot be re- opened on a mere change of opinion on the same set of facts and that there should be failure on the part of the appellant in disclosing fully and truly material facts necessary for the assessment. It is further well-settled that for the purposes for deciding whether the jurisdiction has been properly assumed or not, what is necessary is that there should be some material for prima-facie formation of the belief that there has been escapement of income on account of omission or failure on the part of the assessee to disclose fully or truly all the material facts necessary for the assessment. The belief, which was formed by the AO assuming the jurisdiction, must be held bona fide and would be a prima-facie one. Such belief is prima-facie on the material available and in the ultimate re-assessment the assessee may establish that there has been no escapement of any income. However, all these conditions would not come into play as the present case is related to 143(1) and not 143(3). 3.2. In the light of the above well-settled principles, the above issue needs to be examined. The reasons as recorded for re-opening the assessment was duly communicated to the appellant, at least there was no reverse claim by the appellant. The reasons were provided to the appellant and thereafter repeated adjournments were allowed to the appellant. This shows that the recorded reason was duly communicated to the appellant. Neither it was contested nor it was adduced as ground that recorded reason was not supplied to the appellant, rather it was the appellant who repeatedly failed to produce the Director of the investing companies before the AO and to 6 Shivam Softech Ltd. establish the identity, creditworthiness and genuineness of the transaction. 3.3 The question therefore, is whether there were material before the AO to entertain the belief that the appeollatn has nto disclosed Rs. 3,00,000/- from HKSH & ASC. The appellant filed its return of income for the relevant assessment year on 31.10.2002. In the said return it did nto show such amount of Rs. 3,00,000/- from HKSH & ASC. The point was never being a part of the order as it was made u/s 143(1) and hence the income has escaped the attention of the AO. 3.4 The AO had material for forming the belief that the appellant has nto disclosed Rs. 3,00,000/- from HKSH & ASC. The fact that the AO could prima-facie form such a belief would also be evident from the material available on record. Further it has already been stated that the order u/s 143(1) of the Act was conspicuously silent regarding the said issue as there is no such scope in 143(1). From the above facts, it cannot be said that the AO had no material for entertaining the prima-facie belief that the appellant company has disclosed true and full income for the relevant period. Accordingly, the AO has reason to believe that there was omission or failure on part of the appellant in disclosing fully and truly the correct facts while contending that the company has not disclosed income of Rs. 3,00,000/- from HKSH & ASC. The conclusion from the aforesaid fact in the recorded reason that the amount was not disclosed and consequently income has escaped assessment and such decision of the AO cannot be faulted. Accordingly, the contention that there was no material for formation of the belief as postulated u/s 147 to re-open the assessment cannot be sustained. The initiation of proceeding of relevant assessment is accordingly upheld. 3.5 In the assessments for the relevant year, the appellant has never disclosed the amount and offered the same for taxation. The recorded reason however is that the appellant has introduced unaccounted money in its books and hence the same should come under the ambit of income under unexplained cash credit. 3.6 The allegation of the appellant (as revealed from grounds of appeal) that there was no positive information in the possession of the AO is not correct. It is a fact that the AO has received information from DIT (Investigation), New Delhi and after receipt of the information it was his satisfaction that the income has escaped asstt. And hence the submission of the appellant on this ground is not sustainable. Further there is no bar in the Act or any of the cases so far reported tha the AO cannot receive information from DIT (Inv.). The only thing is to be seen that it should be his satisfaction and that of nobody else. The satisfaction was also duly recorded by the AO.”

7.2 The fact that no assessment u/s 143(3) of the Act was completed in the case of the assessee before issue of notice u/s 148 of the Act is not disputed by the parties. In our view, when no assessment u/s 143(3) of the Act was completed, there was no information available on the file of the Assessing Officer for verification whether any credit was introduced by those two creditors either by way of investment or loan or in any other forms. The AO while recording reasons verified that the information belonged to the assessee and it belonged to the relevant assessment year under consideration and the information was received from a reliable source i.e. the Director of Income Tax (Investigation) and thereafter he recorded satisfaction that he had reason to believe that there was a escapement of income in the case , therefore, in the circumstances it cannot be said that AO has not applied his mind. In the case of ITO vs. Comero Leasing & Financing Pvt. Ltd. (Supra) cited by the ld. AR, the assessment was completed and the records were available with the AO before issue of notice u/s 148 of the Act, whereas in the case of assessee, the return was processed u/s 143(1) of the Act only and no scrutiny assessment was completed before issue of notice u/s 148 of the Act, thus, the ratio of the said decision is not applicable of the fact of the case of the assessee. We also agree with the contention of ld Sr DR that sufficiency or correctness of the material cannot be considered at the stage of issuing notice under section 148 of the Act as held by ITO ( supra).

Thus, we uphold the finding of the Ld. CIT(A) in impugned order that notice issued by the AO under section 148 of the Act was in accordance to law , and accordingly, we dismiss grounds No. 1,2 & 3 of the appeal.

Because of the peculiar facts of the case, as brought on record by the Ld. AO and as discussed above by me in foregoing paragraphs, the invoking of Sec. 68 is held to be correct.”

In the result appeal of the assessee is allowed. The decision is pronounced in the open court on 9th March, 2016.