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Income Tax Appellate Tribunal, DELHI BENCH ‘H’ : NEW DELHI
Before: SHRI H.S. SIDHU & SHRI O.P. KANT
Date of Hearing : 17-02-2016 Date of Order : 14-03-2016 ORDER PER H.S. SIDHU, J.M. The Department has filed the Appeal and Assessee has filed the Cross Objection which is emanate from the Order dated 12.11.2009 of the ./2010 CO NO. 58/DEL/2010 2 Ld. CIT(A)-XIX, New Delhi pertaining to assessment year 2000-01. The grounds raised in the revenue’s appeal reads as under:-
“1. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs. 82,14,000/- made u/s. 68 of the Income Tax Act, 1961 especially when the identity and credit worthiness of the subscribers to the share application money and genuineness of transaction, were not established satisfactorily. 2. On the facts and in the circumstances of the case, Ld.
CIT(A) has erred in deleting the addition of Rs.
2,05,350/- made on account of commission paid for obtaining accommodation entries in guise of share application money.”
The grounds raised
by the Assessee in the Cross Objection reads as under:- “1. That having regard to the facts and circumstances of the case Ld. CIT(A) has erred in law and on facts in confirming the action of AO in passing the impugned assessment order without complying with the mandatory conditions as prescribed under section 147 to 153 of the Income Tax Act, 1961 and reopening of the case is bad in law and beyond the jurisdiction of the AO.
2. That the Cross Objector craves the leave to add, amend, modify, delete any of the ground(s) of cross objection before or at the time of hearing.” ./2010 CO NO. 58/DEL/2010 3
The brief facts of the case are that the return of income was processed u/s. 143(1)(a) vide intimation dated 5.3.2002 on returned income of Rs. 13,53,490/-. On the basis of information received from Investigation Wing of the Income Tax Department, Notice u/s. 148 issued on 13.3.2007 after recording the reasons and after taking approval in terms of Section 151(1) of the I.T.
Act. The notice was duly served upon the assessee on 14.3.2007.
In response to notice u/s. 148 the assessee vide letter dated 10.4.2007 submitted that the returned filed on 30.10.2000 be treated as returned of income having been filed in response to notice u/s.
The reasons for reopening for assessment was communicated to the assessee. The case was fixed for hearing by issuing notice u/s. 143(2)/142(1) and in compliance Ld. Authorised Representative filed the submissions dated 28.9.2007 and 19.11.2007. Thereafter, the AO held that it is proved beyond doubt that the assessee has failed to discharge the initial onus cast upon him in accordance with the provisions of section 68 of the I.T. Act. Accordingly, money received on account of share application is treated as undisclosed income amounting to Rs. 82,14,000/- and also added the commission paid to the entry operators amounting to Rs. 2,05,350/- to the income of the assessee by completing the assessment at Rs. 84,19,350/- u/s. 143(3)/147 of the Act vide order dated 18.12.2007. ./2010 CO NO. 58/DEL/2010 4
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 12.11.2009 has partly allowed the appeal of the Assessee and deleted the addition in dispute.
Aggrieved with the aforesaid order of the Ld. CIT(A), Revenue is in Appeal before the Tribunal against the deletion of additions and Assessee has filed the Cross Objection challenging the legal issue of reopening of assessment.
Now we first deal with the Assessee’s Cross Objection and adjudicate upon the legal issue of reopening of assessment.
At the time of hearing, Ld. Counsel of the assessee has only argued the legal ground challenging the validity of reopening u/s. 147 of the I.T. Act by stating that action of the Assessing Officer is illegal, because no proper reasons were recorded; no nexus between the materials relied upon and the belief formed for escapement of income; no application of mind; no proper satisfaction was recorded before issue of notice u/s. 148; no independent conclusion that there was escapement of income and no proper satisfaction / approval has been obtained from the Addl. CIT. He further submitted that the present case is squarely covered by the Hon’ble Jurisdictional High Court Decision dated 08.10.2015 passed in in the ./2010 CO NO. 58/DEL/2010 5 case of Pr. CIT-4 vs. G&G Pharma India Ltd., wherein the Tribunal’s decision dated 09.1.2015 has been upheld. In this behalf, he filed the copy of the order dated 08.10.2015 of the Hon’ble High Court of Delhi in Pr. CIT vs. G&G Pharma India Ltd (Supra). Therefore, he requested that by following the decision in the case of Pr. CIT vs. G&G Pharma India Ltd., (Supra) the legal issue 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 the 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 u/s. 148 and the approval of the Ld. Addl. CIT, Range-17, New Delhi for reopening of assessment which reads as under:-
“REASONS
An information has been received vide exhaustive report of the Investigation Wing dated 2.3.2006, that ./2010 CO NO. 58/DEL/2010 6 the assessee company has received accommodation entry of Rs. 2,55,000/- dated 24.6.1999, through
Federal Bank, Karol Bagh, New Delhi. In reality the accommodation entry represents the assessee’s own unaccounted money.
I have reasons to believe that income of Rs. 2,55,000/- has escaped assessment for the AY
2000-01. Therefore, the Ld. Addl. CIT, Range-17, New
Delhi may kindly accord approval under section 151(2) for issue of notice under section 148.
Dated Sd/-
(Subhash Sahni) Dy. Commissioner of Income Tax, Circle 17(1), New Delhi 12. Whether the Addl. CIT/CIT/CBDT is satisfied on the reasons recorded by the AO that is a fit case for the issue of notice u/s. 148.
YES, I’AM SATISFIED.
Dated: 8/3/07 Sd/- (Sunita Bainsla) Addl. CIT, Range-17, New Delhi”
./2010 CO NO. 58/DEL/2010 7 9.1 After going through the reasons recorded by the Assessing Officer/DCIT, Circle 17(1), New Delhi for reopening and the approval thereof by the Ld. Addl. CIT, Range-17, New Delhi, 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 ./2010 CO NO. 58/DEL/2010 8 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 ./2010 CO NO. 58/DEL/2010 9 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.”
./2010 CO NO. 58/DEL/2010 10
(b) Signature Hotels (P)_ Ltd. vs. ITO and another reported in 338 ITR 51 (Del) has under similar circumstances as follows:- “For the A.Y. 2003-04, the return of income of the assessee company was accepted u/s.143(1) of the Income-tax Act, 1961 and was not selected for scrutiny. Subsequently, the Assessing Officer issued notice u/s.148 which was objected by the assessee. The Assessing Officer rejected the objections. The assessee company filed writ petition and challenged the notice and the order on objections.
The Delhi High Court allowed the writ petition and held as under: “(i) Section 147 of the Income-tax Act, 1961, is wide but not plenary. The Assessing Officer must have ‘reason to believe’ that income chargeable to tax has escaped assessment. This is mandatory and the ‘reason to believe’ are required to be recorded in writing by the Assessing Officer. (ii) A notice u/s.148 can be quashed if the ‘belief’ is not bona fide, or one based on vague, irrelevant and non- specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded the reasons. There should be a link between the reasons and the evidence/material available with the Assessing Officer. (iii) The reassessment proceedings were initiated on the basis of information received from the Director of ./2010 CO NO. 58/DEL/2010 11
Income-tax (Investigation) that the petitioner had introduced money amounting to Rs.5 lakhs during F.Y. 2002-03 as stated in the annexure. According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. (iv) Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, S, had a paid up capital of Rs.90 lakhs and was incorporated on January 4, 1989, and was also allotted a permanent account number in September 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to the quashed.”
In view of above, we are of the considered view that the above issue is exactly the similar and identical to the issue involved in the present appeal and is squarely covered by the aforesaid decisions of the Hon’ble High Court of Delhi. Hence, respectfully following the above precedents, we decide the legal issue in dispute in favor of the Assessee being bad in law and beyond the jurisdiction. Therefore, we quash the orders of the ./2010 CO NO. 58/DEL/2010 12 authorities below and allow the Cross Objection filed by the Assessee.
REVENUE’S APPEAL
Since we have quashed the orders of the authorities below on the legal issue itself, hence, the issues raised by the Revenue in its Appeal have become infructuous, therefore, the same are dismissed as such.
In the result, the Assessee’s Cross Objection stands allowed and Revenue’s appeal stand dismissed. Order pronounced in Open Court on this 14-03-2016.