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Income Tax Appellate Tribunal, DELHI BENCH ‘H’ : NEW DELHI
Before: SHRI H.S. SIDHU & SHRI L.P. SAHU
PER H.S. SIDHU, JUDICIAL MEMBER
The Assessee has filed the Appeal against the impugned Order dated 29.10.2012 passed by the Ld. CIT(A)-19, New Delhi relevant to assessment year 2002-03. 2. The grounds raised by the Assessee reads as under:- “Validity of Reopening u/s. 148
1. That on the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in upholding the reopening action of AO which stands vitiated inter alia for following reasons:- a. Total lack of tangible material/ reasonable cause and jurisdiction. b. Absence of nexus (much less live nexus) between alleged information (unknown whether exists on file or not) and tentative inference drawn; c. Non Application of mind much less independent application of mind d. Total lack of clarity on nature of transaction in reasons recorded 2. That on the facts and in the circumstances of the case and in law, learned CIT-A erred in arbitrarily applying factually distinguishable precedents to mechanically uphold the orchestrated additions made by Ld AO inter alia without appreciating that: a. Reasons recorded originally as supplied to assessee mentioned share application transaction for Rs 200,000 whereas later on addition is made by Ld AO is for Rs. 11,10,000 (unknown how scope of reasons extended as, it is settled reasons cannot be recorded in piecemeal manner and is not empty ritual); b. On enquiry u/s 133(6) share applicants/holders have adequately responded to Ld AO during assessment stage thereby proving their existence beyond anvil of doubt c. No meaningful enquiry by Ld AO from share applicants to impeach the unassailable evidence filed by appellant assessee; d. Whole addition is made on directions and dictates of investigation wing treating its recommendation as gospel truth; e. Adverse inference is automatically drawn solely and merely because of non production of directors of share applicants companies
'That on the facts and in the circumstances of the case and in law, learned CIT-A erred in sustaining the addition made by Ld AO amounting to Rs. 11,10,000 & Rs 27,750 dehors the material available on record based on peroerse findings and conclusions, . That the appellant craves leave to add, to, amend, modify, rescind, supplement or alter any of the grounds stated herein above, either before or at the time of hearing of this appeal. 3. The brief facts of the case are that the assessee filed return of income on 31.10.2002 declaring income of Rs.3,811/-. The return was processed u/s 143(1) of the Income-tax Act, 1961 on 27.1.2003. An information has been received from the DIT(Investigation), New Delhi that the assessee company had received accommodation entries from various companies/ parties to the tune of Rs. 2,00,000/-. These entries are in the nature of accommodation entries and in the reality it is the assessee’s own unaccounted money which has been shown in the books of accounts as a receipt from parties/ companies. Accordingly, the case was reopened u/s. 147 of the Income Tax Act after recording the reasons. A notice u/s. 148 of the I.T. Act was issued on 28.8.2006 and was served upon the assessee. In response to the said notice the assessee company vide its letters dated 8.8.2007 stated that “return filed by the assessee u/s. 139 is considered as return filed in response to notice u/s 148. Statutory notice u/s. 143(2) was issued and served and in response thereto assessee’s authorized representative attended the assessment proceedings and during the assessment proceedings AO noticed that the accommodation entries are of Rs. 11,10,000/- and not of Rs.2,00,000/- as mentioned in the reasons recorded. He further noticed that assessee has raised share application money / share capital from various companies/ parties. The assessee companies furnished the required details in respect of share application / share capital raised during the year. Thereafter, the AO held that in terms of section 68 the burden is on the assessee to offer a satisfactory explanation about the nature and source of amount found credited in the books of the assessee and it was further held that it is clear that mere furnishing of particulars is not enough. AO observed that since the assessee has failed to do so in submitting the information called for and has also failed to discharge his onus to produce the parties/ persons, a sum of Rs. 11,10,000/- in respect of share application money/ share capital, and he added the same to the income of the assessee u/s. 68 of the Act and also added Rs. 27,750/- being commission and completed the assessment at Rs. 11,41,560/- u/s. 143(3)/148 of the Act vide order dated 26.12.2007.
Against the Order of the Ld. AO, assessee appealed before the Ld. CIT(A), challenging the validity of reassessment as well as the additions in dispute who vide impugned order dated 29.10.2012 has dismissed the appeal of the assesseee.
Aggrieved with the aforesaid order of the Ld. CIT(A), Assessee is in Appeal before the Tribunal.
At the time of hearing, Ld. Counsel of the assessee has only argued the legal ground challenging the validity of reopening u/s. 148 of the I.T. Act by stating that action of the Assessing Officer is illegal, because the same is lacking tangible material / reasonable cause and justification. The action of the Revenue Authorities is in absence of nexus between alleged information and tentative inference; non application of mind much less independent application of mind; total lack of clarity on nature of transaction in reasons recorded. He further submitted that the present case is squarely covered by the Hon’ble High Court Decision dated 8.10.2015 passed in in the case of Pr. CIT-4 vs. G&G Pharma India Ltd., wherein the Tribunal’s decision dated 9.1.2015 has been followed. In this behalf, he filed the copy of the order dated 8.10.2015 of the Hon’ble High Court of Delhi in Pr. CIT vs. G&G Pharma India Ltd. Therefore, he requested that by following the decision in the case of Pr. CIT vs. G&G Pharma India Ltd., the ground no. 1 raised by the Assessee in the present appeal may be allowed.
On the contrary, Ld. DR relied upon the order passed by the CIT(A) on issue of validity of reopening and stated that Ld. CIT(A) has rightly upheld the action of the AO of reopening.
We have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities and the case law cited by the assessee’s counsel on the issue in dispute. In our view, it is very much necessary to reproduce the reasons recorded by the AO before issue of Notice to the Assessee u/s. 148 of the I.T. Act, 1961 which is reproduced hereunder:-
“M/s V. S. Capital Services (P) Limited
Asst. Year -2002-03
Reason for Reopening of the case 25.08.2006 The Information has been received by the Directors of income tax (Inv}-I New Delhi vide letter no DIT (Inv)-I/2006-07/AE/258 at 16/6/2006 that the above said company have received accommodation entries as above:-
Rs.l00000/- on 31.03.2002 from M/s. Rabik Exports Limited Through Corporation Bank Paschim Vihar A/c No.-52199. Rs. 100000/- on 31.03.2002 from Mis. Shashi Sales & Marketing Pvt. Limited Through Corporation Bank Paschim Vihar A/c No.-52351.
In reality these accommodation represent the assessee own unaccounted money. The Assessment in this case was completed u/s 143(1) on 27.01.2003. These entries are not shown in the return of income filed on 31 October, 02. In view of the above I have reasons of believe that the income of Rs. 200000/- has escaped assessment for the A. Year 2002-03. Therefore the case is re- opened u/s 147 of the Income Tax act for the assessment year 2002-2003.
Sd/- Income Tax Officer W-17(1) New Delhi”
8.1 For the sake of clarity, we are also reproducing herewith the para no. 4 of the impugned order dated 29.10.2012 at page no. 5 wherein Ld. CIT(A) has discussed the issue of challenging the reopening of assessment u/s. 147 of the Act.
“4.1 Ground no. 2 challenges the reopening of assessment u/s 147. In the assessment er, the AO. has stated as follows:
Originally return of income was filed on 31.10.2002 declaring income of Rs. 3,811/-. The return filed was processed uls 143(1) of I. T. Act on 27.01.2003. An information has been received from the DIT (Inv.), New Delhi that the assessee company had received accommodation entries from various companies! parties to the tune of Rs.
2,00,000/-. These entries is in the nature of an accommodation entries and in the reality it is the assessee is own unaccounted money which has been shown in the books of accounts as a receipt from parties 1 companies.
Accordingly the case was reopened uls 147 of the Income Tax Act after recording the reasons.
A notice uls 147 of the IT Act was issued on 28.O8.2006 and was served upon the assessee.
In response to the said notice the assessee company vide its letter dated B. B. 2007 that "return filed by the assessee uls 139 is considered as return filed in response to notice uls
14B." Statutory notice uls 143(2) was issued and served. In response to the statutory notices, Shri
Rishi Singhal, CA attended the proceedings from time to time. The case was discussed with him.”
8.2 After going through the reasons recorded by the AO and the finding given by the Ld. CIT(A) in para 4.2 to 4.4 of pages 5 to 7 of the impugned order, we are of the view that AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt.
Year in dispute is bad in law and deserves to be quashed. Our view is supported by the following judgment/decision:-
Pr. CIT vs. G&G Pharma India Ltd. in dated 8.10.2015 of the Delhi High Court wherein the Hon’ble Court has adjudicated the issue as under:-
“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 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 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 .
In the circumstances, the conclusion reached by the ITAT cannot be said to be erroneous. No substantial question of law arises.
The appeal is dismissed.”
In view of above, we are of the considered view that the aforesaid issue in dispute is exactly the similar and identical to the issue involved in the present appeal and is squarely covered by the aforesaid decision of the Hon’ble High Court of Delhi in the case of G&G Pharma (Supra). Hence, respectfully following the above precedent in the case of Pr. CIT-4 vs. G&G Pharma India Ltd. (Supra) we decide the legal issue in dispute in favor of the Assessee and against the Revenue and accordingly quash the reassessment proceedings and allow the ground no. 1 raised by the Assessee in its Appeal. Since we have quashed the reassessment proceedings, as aforesaid, the other issues are not being dealt with.
In the result, Assessee’s appeal is allowed.
Order pronounced in Open Court on this 03-03-2016.