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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
Instant appeal of the assessee is directed against the order dated 27th January 2014, passed by the learned Commissioner (Appeals)–27, Mumbai, for the assessment year 2005–06.
Assessee has raised three effective grounds along with its sub– grounds, which are as under:–
“1. Violation of principles of Natural Justice: 1.1 The CIT(A) erred in not giving any finding as regards ground Nos. I & 2 by observing that, grounds are of general in nature without appreciating that, the principle of Natural Justice was violated and evidences were used against the 2 Smt. Rasila N. Gada assessee without furnishing the copy, hence the order of the Assessing officer confirmed by CIT(A) is bad in law. 1.2 The CIT(A) erred in confirming that the Assessing Officer, who failed to provide a copy of the statements of Mr. Mukesh Choksi on the basis of which assessment was reopened and further an opportunity of cross examination, in spite of a specific request made by the Appellant in this behalf. Therefore, the assessment order dt. 25/03/2013 is against the principles of natural justice, and hence, bad in law.
2. Reopening is bad in law: 2.1 The CIT(A) erred in confirming the order of the Assessing Officer in reopening the assessment u/s. 147 of the Act, without appreciating the facts that there was no escapement of assessment in the assessee's case as the original return was accepted u/s. 143(1) dtd. 26/10/2006. And there is no new material or facts brought on record, thus reopening is nothing but based on change of opinion and hence had in law. 2.2 The CIT(A) failed to appreciate that The Assessing Officer failed to provide a copy of the recorded reasons to the Appellant on the 2.3 The CIT(A) erred in confirming the action of the Assessing Officer and failed to appreciate the fact that the notice u/s 148 dtd. 14/03/2011 was issued on the basis of third party's statement recorded on oath in the search and seizer action u/s. 132 in the case of M/s. Mahasagar Securities Pvt. Ltd., Hence the reopening is bad in law and is liable to he quashed.
3. Addit io n un d e r se ctio n 6 9 o f R s.3 6 ,45 ,8 53 / - o n alle ge d Accommodation Entries: 3.1 The CIT(A) erred in confirming action of the Assessing Officer and failed to appreciate that the transactions entered into by the Appellant were only of Rs.1,44,463/- and were duly supported by all supporting evidence, shown in balance sheet, hence addition of Rs.36,45,853/- may be deleted. 3.2 The CIT(A) erred in treating Rs.36,45,853/- as the unexplained investment of the Appellant without bringing any evidence to support of the same and the provisions of Section 69 cannot be applied to the facts of the appellant, based on the statement of third party.
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3.3 Without prejudice to above, the CIT(A) failed to appreciate that the appellant has shown speculation profit of ` 1,84,705 and paid tax thereon hence addition of ` 36,45,853 may be deleted.”
At the outset, learned counsel for the assessee proposed to deal with the legal issue raised in ground no.2, challenging the validity of re–opening of assessment under section 147 of the Income Tax Act, 1961 (for short "the Act").
Brief facts relating to the issue are, the assessee is an individual. For the assessment year under consideration, the assessee filed her return of income on 21st December 2005, declaring total income of ` 2,28,342. As it appears, the return of income filed by the assessee was processed under section 143(1) of the Act on 23rd October 2006. Subsequently, the Assessing Officer being of the opinion that the assessee has made transactions in share amounting to ` 36,45,583 through Gold Star Finvest Securities Ltd., and profit derived therefrom was not offered to income, thereby, resulting in escapement of assessment, reopened the assessment under section 147, by issuing a notice under section 148 of the Act on 27th March 2012. After receiving the notice under section 148, the assessee on 27th April 2012, submitted its reply requesting the Assessing Officer to treat the return of income filed originally as return of income in response to notice under section 148 and at the same time he also requested the 4 Smt. Rasila N. Gada Assessing Officer to furnish the reasons recorded. The Assessing Officer vide letter dated 4th October 2012, furnished the reasons for re–opening of assessment. After receiving the reasons recorded, the assessee objected to the initiation of proceedings under section 147 on the plea that she was not involved in any such share transaction as referred to by the Assessing Officer in the reasons recorded for re– opening the assessment. The Assessing Officer finding no merit in the objections raised by the assessee, proceeded to complete the assessment under section 143(3) r/w section 147 of the Act on 25th March 2013, by holding that the sale of shares shown by the assessee amounting to ` 36,45,853, is nothing but an accommodation entry provided by Mahasagar Securities Pvt. Ltd. to the assessee. The Assessing Officer relying upon the statement recorded from one Shri Mukesh Choksi, held that the assessee had not actually entered into any share transaction but in reality it is assessee’s unaccounted money which has been routed back to him through bogus purchase and sale of shares. Accordigly he treated the amount of ` 36,45,853 as unexplained investment of the assessee under section 69 of the Act. Being aggrieved of such addition made in the assessment order, the assessee preferred appeal before the learned Commissioner (Appeals) challenging the assessment order both on the validity of initiation of proceedings under section 147 as well as merits of the additions made.
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Learned Commissioner (Appeals), however, did not find merit in any of the grounds raised by the assessee and dismissed the appeal.
Learned Authorised Representative submitted, in the reasons recorded for re–opening of assessment furnished to the assessee, the Assessing Officer has stated that the assessee has obtained accommodation entries amounting to ` 36,45,853, from Gold Star Finvest Securities Ltd. In this context, he referred to the reasons recorded for re–opening of assessment as communicated to the assessee, a copy of which is at Page–8 of the paper book. Learned Authorised Representative submitted, after receiving reasons recorded, the assessee in its reply dated 7th November 2012, has clearly and specifically brought to the notice of the Assessing Officer that it has not indulged in any share transactions with Gold Star Finvest Securities Ltd. It was submitted, during the relevant previous year, assessee has entered into share transactions through Mahansager Securities Pvt. Ltd., by making intraday transactions and net profit earned from such transactions was ` 114462=61. Learned Authorised Representative, drawing the attention of the bench to the impugned assessment order submitted, in the assessment order, the Assessing Officer has referred to share transactions made by the assessee through Mahasagar Securities Pvt. Ltd. He, therefore, submitted the reasons recorded being at variance with the assessment
6 Smt. Rasila N. Gada order, the proceedings under section 147 is vitiated, hence, legally unsustainable. He submitted, even the figure of ` 36,45,853, does not match to the exact sale figure of shares through Mahasagar Securities Ltd., as reflected in the Balance Sheet of the assessee. Thus, it was submitted, the re–opening being bad–in–law, the assessment order is to be quashed. Learned Authorised Representative submitted, under identical facts and circumstances, the co–ordinate bench in the case of another assessee in the group has quashed the assessment order passed under section 143(3) r/w section 147 of the Act. A copy of the order passed in case of Harakchand K. Gada (HUF) v/s ITO, ITA no.2800/Mum./2014 dated 9th December 2015, was submitted before the Bench.
Learned Departmental Representative on the other hand referring to the observations made by the learned Commissioner (Appeals) in Para–2.4.6 of his order submitted, Shri Mukesh Choksi, in respect of another group company, viz. Gold Star Finvest Securities Ltd., has admitted that the company was providing accommodation entry, therefore, the Assessing Officer was justified in re–opening the assessment.
We have considered the submissions of the parties and perused the material available on record. Undisputedly, the Assessing Officer in 7 Smt. Rasila N. Gada the present case, has re–opened the assessment after expiry of four years from the end of the relevant assessment year. However, it needs to be mentioned in the present case earlier no assessment under section 143(3) has been made. Be that as it may, it is noticed, as per the communication dated 4th October 2012, of the Assessing Officer to the assessee, assessment was re–opened for the following reasons:–
“The assessee has obtained accommodated entries amounting to ` 36,45,853 for F.Y. 2004–05 relevant to A.Y. 2005–06 for Gold Star Finvest Securities Ltd.”
He also requested to file the details as per the reasons mentioned above. Thus, it is clear from the reasons recorded that the alleged escapement of assessment pertains to share transactions made through Gold Star Finvest Securities Ltd. It is further noticed after receiving the reasons recorded, the assessee in her letter dated 7th November 2012, while objecting to the re–opening of assessment had specifically brought to the notice of the Assessing Officer that she has not indulged in any share transactions through Gold Star Finvest Securities Ltd. However, the Assessing Officer while completing the assessment has not referred to any share transactions through Gold Star Finvest Securities Ltd. but has referred to share transactions made through Mahasagar Securities Pvt. Ltd., which according to the Assessing Officer is an accommodation entry. If the reasons recorded are juxtaposed to the facts stated in the assessment order, it becomes
8 Smt. Rasila N. Gada clear that subject matter of re–opening as per reasons recorded and as per assessment are at variance. While in the reasons recorded for re– opening the assessment, the Assessing Officer has referred to accommodation entries provided by Gold Star Finvest Securities Ltd. in the assessment order, the Assessing Officer has referred to accommodation entries provided by Mahasagar Securities Pvt. Ltd. Therefore, in our view, the impugned assessment order has no nexus to the reasons recorded for re–opening the assessment. Even otherwise also, the very basis for re–opening of assessment is on wrong premise as the facts on record would reveal that the assessee has not made any share transactions through Gold Star Finvest Securities Ltd. For this reason alone, assessment made under section 143(3) r/w section 147, deserves to be quashed as there is no live link or nexus between the facts on record and formation of belief. Further, it is observed, the co–ordinate bench of the Tribunal while deciding similar issue relating to re–opening of assessment on identical facts and circumstances in the case of another assessee in the group viz. Harakchand K. Gada (HUF) (supra) held as under:–
“4.3.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial decision cited. The facts of the matter as emerge from the record are that there was a search and seizure action under section 132 of the Act on 26.10.2006 in the case of share broker M/s. Mahasagar Securities Pvt. Ltd. and its group concerns. Pursuant thereto, the AO initiated proceedings under section 147 of the Act in order to reopen the assessment for A.Y. 2005-06 which was processed
9 Smt. Rasila N. Gada under section 143(1) of the Act and issued notice under section 148 of the Act to assessee on 27.03.2012 (copy placed on pages 4 & 5 of paper book). In response thereto, assessee, vide letter dated 27.04.2012 (pages 6 & 7 of paper book), submitted that there was no escapement of income and that the return of income for A.Y. 2005-06 filed on 17.12.2005 be treated as filed in response to the aforesaid notice issued under section 148 of the Act. The assessee also requested the AO to furnish the reasons recorded for reopening the assessment. In response thereto, the AO vide letter dated 04.10.2012 (copy placed at page 8 of the paper book) provided the assessee with the reasons recorded by him for reopening of the assessment for A.Y. 2005-06 and which were as under: - “The assessee has obtained accommodation entries amounting to `29,95,981/- for F.Y. 2004-05 relevant to A.Y. 2005-06 from M/s. Gold Star Finvest Securities Pvt. Ltd. You are requested to file the details as per the reasons mentioned above.” 4.3.2 From the above, it is seen that the AO made available a copy of the reasons recorded by him for reopening the assessment by letter dated 27.10.2012. We find that the order of assessment concluded under section 143(3) r.w.s. 147 of the Act was passed vide order dated 25.03.2013. In this view of the matter, we find that the averment made by assessee in the ground No. 2.2 that the AO failed to provide it with a copy of the reasons recorded before completion of the order of assessment to be a factually incorrect allegation. 4.3.3 On an appreciation of the details on record we find that the reasons recorded by the AO and provided to assessee vide letter dated 04.10.2012 extracted at para 4.2.1 (supra) are at variance with the facts narrated in the order of assessment wherein the AO in para 1 on page 1 records: - “….. during the year the assessee had taken profit of `29,95,981/- in the shares, the transactions were carried out through M/s. Mahasagar Securities Pvt. Ltd. Since the taxable income of ` 1,61,875/- has escaped assessment for the reasons attributable to the assessee, the assessment was reopened by issue of notice under section 148 of the I.T. Act on 14.03.2011 ….” This variance in the reasons recorded by the AO as provided to the assessee vide letter dated 04.10.2012 and that recorded in the order of assessment, in our view, prevented the assessee from putting up any defence in respect of the reopening of assessment
10 Smt. Rasila N. Gada under section 147 of the Act. This has clearly violated the principles of natural justice as the AO proceeded on a different premise while finalizing the order of assessment dated 25.03.2013. 4.3.4 As contended by the learned A.R. for the assessee it is clearly evident that the reasons recorded by the AO and provided to the assessee vide letter dated 04.10.2012 (supra) were factually incorrect and had neither any bearing nor nexus on the assessee’s assessment nor was it part of the facts considered or additions made by the AO while disposing off the case. There is not a mention of or examination of whether the assessee had entered into any transaction with M/s. Gold Star Finvest Securities Pvt. Ltd. This, in our view, establishes that there was no application of mind by the AO resulting in lack of cogent or genuine or factually correct reasons being recorded while initiating proceedings under section 147 of the Act as there was no nexus between the formation of belief by the AO and the facts of the case. The learned D.R., apart from supporting the orders of the authorities below, was not able to controvert the arguments put forth by the assessee and factual errors in the reasons recorded by the AO for initiating the proceedings under section 147 of the Act in the case on hand for A.Y. 2005-06. 4.3.5 It is also a matter of record that though the assessee had raised grounds in this regard, which are recorded at B, 1 & 2 at pages 3 & 4 of the impugned order, the learned CIT(A) has failed to consider and adjudicate the grounds raised by the assessee. 4.3.6 In the facts and circumstances of the case, on the issue of the reopening of assessment for A.Y. 2005-06 under section 147 of the Act, as discussed at paras 4.1 to 4.3.5 of this order (supra), we are of the view that formation of belief by the AO was a condition precedent as regards the escapement of tax pertaining to the relevant assessment year. Before proceeding to issue the notice under section 147 of the Act, the AO was required to form an opinion, the validity of which are supposed to sustain the formation of an opinion, which can be challenged. Though conclusive evidence is not requisite at the stage of formation of belief, it must be based on application of mind which a reasonable person would apply. In our view, the reasons recorded, as communicated to the assessee by letter dated 04.10.2012, does not remotely evidence independent application of mind as there is clearly no nexus, whatsoever, between the reasons recorded and the factual findings in the order of assessment. In these circumstances we hold that initiation of proceedings under section 147 of the Act is bad in law and consequently the notice issued under section 148 of the Act and the order of assessment for A.Y. 2005-06 dated 25.03.2013 is to be quashed. It is ordered accordingly.”
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The ratio laid down in the aforesaid decision squarely applies to the facts of the present case. Therefore, respectfully following the decision of the co–ordinate bench as referred to above, we hold that re–opening of assessment under section 147 is legally invalid. Consequently, the impugned assessment order passed is hereby quashed. Ground no.2, is allowed.
As we have decided the issue of re–opening in favour of the assessee as aforesaid, there is no necessity or requirement to deal with other grounds raised in this appeal as they are of mere academic interest.
In the result, appeal stands allowed. Order pronounced in the open Court on 31.05.2016