DCIT, KANPUR vs. M/S. BAWA FLOAT GLASS LTD., GHAZIABAD

This is an appeal filed by the Revenue directed against the order of the Ld.Commissioner of Income Tax (Appeals)-V dated 04.03.2010 pertaining to the Assessment Year (A.Y.) 2000-2001. The assessee has filed a C.O. 2. The assessee is a company and has filed its return of income on 28.9.2000 declaring income of Rs.3,96,115/-. The assessments were reopened u/s 147 of the Act. The reopened assessments were completed u/s 143(3) of the Act on 26.12.2007 determining the total taxable income at C.O. No. 276/Del/2010 A.Y. 2000-2001 M/s Bawa Float Glass Limited Rs.68,96,120/-. On appeal the First Appellate Authority granted relief by deleting the addition made u/s 68 of the Act. On the issue of reopening the Ld.CIT(A) held against the assessee. Aggrieved with the finding on merits the Revenue has filed an appeal and the assessee has filed a Cross Objection on the issue of reopening.

We have heard Shri Ved Jain, the Ld.Counsel for the assessee and Shri Manoj Chopra, Ld.Sr.D.R. on behalf of the Revenue. On a careful consideration of the facts and circumstances of the case, perusal of material on record, orders of lower authorities, case laws cited, we hold as follows.

We initially take up the jurisdictional issue on reopening of assessment u/s 148 of the Act. The reasons recorded u/s 147 of the Act for issue of notice u/s 148 of the Act, for the reopening are as follows. “Information has been received from the DIT (Inv.), Unit I containing the name of beneficiaries and operators of accommodation entries in Delhi on which M/s Bawa Float Glass Ltd. has ben found to be a beneficiary of entry to the tune of Rs.65 lakhs during the F.Y. 1999-2000 provided by M/s MV Marketing Ltd.,Fair N Square Exports Ltd., Satwant Singh Sodhi Construction P.Ltd. and Ethnic Creations P.Ltd. 4.1. The Hon’ble Delhi High Court in the case of Principal Commissioner of Income Tax vs. G & G Pharma India Ltd. in vide order dt. 8.10.2015 at para 12 and 13 held as follows. “12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10 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 2 C.O. No. 276/Del/2010 A.Y. 2000-2001 M/s Bawa Float Glass Limited 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 .”

The Hon’ble Delhi High Court in the case of CIT-4 s. Independent Media P.Ltd. in ITA 108/2013 judgement dt. 19.11.2015 at para 7 and 8 held as follows. “7. Recently this Court by order dt. 8th October, 2015 in (Pr.CIT vs.G&G Pharma India Ltd.) dealt with a similar instance of reopening of assessment by an AO based on the information received from DIT (Investigation) without making any effort to discuss the material on the basis of which he formed a prima facie opinion that income had escaped assessment. The Court held that the basic requirement of S.147 of the Act that AO should apply a mind in order to form reasons to believe that income had escaped assessment had not been fulfilled. 8. As far as the present case is concerned, the situation is no different. The ITAT was, in the circumstances, justified in holding the initiation of the reassessment proceedings was invalid.” 6. A plain reading of the reasons recorded demonstrate that the A.O. has 3

In the result the Cross Objection of the assessee is allowed and the Revenue’s appeal is dismissed. Order pronounced in the Open Court on 05th February, 2016.