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Income Tax Appellate Tribunal, DELHI BENCHES: “F” New Delhi
Before: SHRI G.D. AGRAWAL & SHRI SUDHANSHU SRIVASTAVA
PER SUDHANSHU SRIVASTAVA JUDICIAL MEMBER
Department has filed this appeal against the impugned order dated 14.02.2011 passed by the Ld. CIT(A) – XVIII, New Delhi for assessment year 2003- 04.
The facts of the case are that the assessee company had filed its Return of Income for the year under consideration for Rs. 65,518/- which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter called the Act). Thereafter, based on a report of DIT (Investigation), reassessment proceedings were initiated and the reassessment was completed at Rs. 16,00,000/-. .
Before proceeding with the on the merits of the appeal, it will be worthwhile to reproduce the reasons recorded for the issuance of notice u/s 148 off the Act. The reasons recorded for the issuance of notice u/s 148 of the Income Tax Act 1961 are as under:-
"DIT (lnv) during the course of investigation in the case of Mukesh Gupta group along with its dose confidants Shri Rajan .Jassai and Shri Surinder Pal Singh found that the group have operated multiple accounts in various branches to plough back unaccounted black money for the purpose of business or for personal needs such as purchase of assets etc. in the form of gifts, share application money loans etc. During the course of investigations by the DIT(lnv) it was discovered that the assesses who have unaccounted money (hereinafter called as entry takers or beneficiaries) and want to introduce the same in the books of accounts without paying tax approach another person (entry operator) and hand over cash (plus commission) and take cheques/DDS/POs. The cash is deposited by the entry operator in a bank account either in his own name or in the name of relative/friends or other person hired by him, for the purpose of opening bank account. The entry operator thereafter issues cheque/DD/PO in the name of beneficiary from the same account (in which the cash is deposited) or another account in which funds are transferred through clearing in two or more stages. The beneficiary in turn deposits these instruments in his bank accounts and the money comes to his regular books of account in the form of gift, share application money, loan etc. through banking channels and the transaction looks genuine. It is noticed from the list of entries that the assessee M/s Rajat Export Import (India) Pvt. Ltd. has taken the following accommodation entries from the following person(s) as per details hereunder :-
Instrument A/C No. Amount Date Name of ontry provider Name of Bank Name of Branch No. RAJSHREE MARKETING s SERVICES(P) 500000 513249 7·Aug·02 JAILAXMI COOP BANK FATEHPURI 3334 300000 923889 14·Aug·02 SHIVAM SOFTECH LTD. FEDERAL KAROLBAGH 595
In view of the report received from the DIT (lnv.) New Delhi, and in view of the facts narrated above it is clear that the assessee has not disclosed fully and truly all material facts necessary for its assessment for that assessment year. I have therefore, reason to believe that the sum of Rs.8,00,000/- chargeable to tax has ITO vs. Rajat Export Import P. Ltd. escaped assessment. Thus, the same is to be brought to tax under section 147/148 of the I.T. Act 1961”.
As per the AO, the assessee furnished copies of share application forms, certified copies of confirmations containing details of amounts invested, copies of PAN card, copies of bank accounts of the parties, copies of ITRs etc. in support of its claim of receipt of shares application money from the parties. The AO observed that a perusal of the bank statements of the parties from whom the assessee had received funds revealed that these entries were cleared after deposit of equivalent amount in cash or transfer just prior to the clearance of the cheques issued to the assessee company. Accordingly, it was the AO’s opinion that the assessee had failed to prove the credit worthiness of the parties and as such these entries were bogus and it was assessee’s own income from undisclosed sources and an addition of Rs. 16 lacs was made.
The appeal before the Ld. CIT (A) was decided in favour of the assessee on the ground that the assessee had provided proof of identity and proof of credit worthiness of the parties and therefore, as per the Ld. CIT (A), the additions made were legally unsustainable.
In the present appeal before us Department has challenged the action of the Ld. CIT (A) in deleting the addition of Rs. 16 lacs whereas the assessee has filed an application under Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 challenging the assumption of jurisdiction u/s 147 of the Act by AO on two counts viz. (a) That sanction for issuance of notice u/s 148 of the Act was not taken from the appropriate authority and (b) That the AO had not applied his mind
ITO vs. Rajat Export Import P. Ltd. independently to the information received from the investigation wing before the issuance of notice u/s 148 of the Act. With the consent of both the parties we proceed to adjudicate on the issue of assumption of jurisdiction u/s 147 of the Act raised by the assessee under Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 first.
Ld. Counsel for the assessee drew our attention towards reasons recorded and submitted that the AO has mechanically proceeded to assume jurisdiction u/s 147 of the Act and has accordingly issued notice u/s 148 of the Act. Ld. AR contended that the AO simply proceeded on information of the investigation wing without analysing and applying his mind towards the nature of transaction to establish that the impugned transactions were in the nature of accommodation entries. He drew our attention to the reasons recorded and submitted that the so called information said to be received from the investigation wing had not been duly processed by the AO and that there was no material on record to show that the AO had applied his mind in forming a belief which would result in the reason to believe as required to proceed u/s 147 and 148 of the Income Tax Act 1961. Ld. Counsel vehemently contended that the copy of the reasons recorded given to the assessee clearly shows that the AO simply proceeded in a mechanical manner that there was a clear lack of information of independent mind by the AO prior to the issuance of notice u/s 148 of the Act, 1961. Ld. Counsel for the assessee has placed his reliance on the following decisions:-
ACIT, Faridabad vs. Shri Devesh Kumar of the ITAT Delhi Bench B 2. G&G Pharma India Limited vs. ITO, Ward 12(1), New Delhi ITA No. 3149/Del/2013 of ITAT Delhi Bench “C”
ITO vs. Rajat Export Import P. Ltd. 3. in the case of Pr. Commissioner of Income Tax-4 vs. G&G Pharma India Ltd. of the Hon’ble Delhi High Court which has affirmed the judgment of the ITAT Delhi “C” Bench in ITA No. 3149/2013
Ld. DR on the other hand stated that the AO had reopened the case on the basis of various documentary evidences relating to the assessee and submitted that the AO has rightly reopened the case of the assessee on the basis of such documentary evidences. Ld. DR also submitted that the decisions relied on by the Ld. AR are on a completely different set of facts and as such were not applicable to the appeal before us.
We have heard both the parties and perused the records available with us and we note that after perusing the reasons records we find that the mere reference is made to the information received from the investigation wing and the reasons are vague and are not based on tangible material. The AO has mechanically issued notices u/s 148 of the Income Tax Act 1961 on the basis of information received by him from the investigation wing of the Income Tax Department. Therefore, we are of the considered view that the AO has not applied his mind so as to give an independent conclusion that he had reasons to believe that income had escaped assessment during the year under consideration. We drew our support from the judgment of the Hon’ble High Court of Delhi in dated 8.10.2015 in the case of Pr. Commissioner of Income Tax -4 vs. G&G Pharma India Ltd. in which the Hon’ble Jurisdictional High Court has recapitulated the jurisdictional requirement for reopening of the assessment u/s 147/148 of the Act as under:-
“9. The Court at the outset proposes to recapitulate the jurisdictional requirement for reopening of the assessment under Section 147/148 of the ITO vs. Rajat Export Import P. Ltd. Act by referring to two decisions of the Supreme Court. In Chhugamal Rajpal v. SP Chaliha (1971) 79 ITR 603, the Supreme Court was dealing with a case where the AO had received certain communications from the Commissioner of Income Tax showing that the alleged creditors of the Assessee were “name- lenders and the transactions are bogus.” The AO came to the conclusion that there were reasons to believe that income of the Assessee had escaped assessment. The Supreme Court disagreed and observed that the AO “had not even come to a prima facie conclusion that the transactions to which he referred were not genuine transactions. He appeared to have had only a vague felling that they may be '“bogus transactions'." It was further explained by the Supreme Court that:
“Before issuing a notice under S. 148, the ITO must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under S. 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the ITO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of cl. (a) or cl. (b) of S. 147 are satisfied, the ITO has no jurisdiction to issue a notice under S. 148.”
The Supreme Court concluded that it was not satisfied that the ITO had any material before him which could satisfy the requirements under Section 147 and therefore could not have issued notice under Section 148.
In ACIT v. Dhariya Construction Co.(2010)328 ITR 515 the Supreme Court in a short order held as under:
ITO vs. Rajat Export Import P. Ltd. “Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the DVO. Opinion of the DVO per se is not an information for the purposes of reopening assessment under s. 147 of the IT Act, 1961. The AO has to apply his mind to the information, if any, collected and must form a belief thereon. In the circumstances, there is no merit in the civil appeal. The Department was not entitled to reopen the assessment.”
11. The above basic requirement of Sections 147/148 has been reiterated in numerous decisions of the Supreme Court and this Court. Recently, this Court rendered a decision dated 22nd September 2015 in of 2013 (Commissioner of Income Tax I I v. Multiplex Trading and Industrial Co. Ltd.) where the assessment was sought to be reopened beyond the period of four years. This Court considered the decision of the Supreme Court in Phool Chand Bajrang Lal v. Income-tax Officer ( s u p r a ) as well as the decision of this Court in M/s Haryana Acrylic Manufacturing Co. (P) Ltd. v. CIT 308 ITR 38 (Del). The Court noted that a material change had been brought about to Section 147 of the Act with effect from 1st April 1989 and observed:
“29. It is at once seen that the Amendment in Section 147 of the Act brought about a material change in law w.e.f. 1st April, 1989. Section 147(a) as it stood prior to 1st April 1989 required the AO to have a reason to believe that (a) the income of the Assessee has escaped assessment and (b) that such escapement is by reason of omission or failure on the part of the Assessee to file a return or to disclose fully and truly all material facts necessary for his assessment for that year. After the Amendment, only one singular requirement is to be fulfilled under Section 147(a) and that is, that the AO has reason to believe that income of an Assessee has escaped assessment. However, the proviso to Section 147 of the Act provides a complete bar for reopening an assessment, which has been made under Section 143(3) of the Act, after the expiry of four years. However, this proscription is ITO vs. Rajat Export Import P. Ltd. not applicable where the income of an Assessee has escaped assessment on account of failure on the part of the Assessee to make a return or to disclose fully and truly all material facts necessary for his assessment. Thus, in order to reopen an assessment which is beyond the period of four years from the end of the relevant assessment year, the condition that there has been a failure on the part of the Assessee to truly and fully disclose all material facts must be concluded with certain level of certainty. It is in the aforesaid context that this Court in M/s Haryana Acrylic Manufacturing Co. (P) Ltd. (supra) explained that the ratio of the decision in Phool Chand Bajrang Lai (supra) may not be entirely applicable since the same was in respect of Section 147(a) as it existed prior to the amendment.”
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 it 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 Supreme Court in the decisions discussed hereinbefore, the basic
ITO vs. Rajat Export Import P. Ltd. 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.”
10. In the present case also it is seen that the AO has merely relied on the report of the investigation wing but it is apparent that he has not applied his mind to the materials which were before him. In our view, without forming a prima facie opinion on the basis of only the report of the Investigation Wing of the Income Tax Department, it was not legal for the AO to have simply concluded that he has reason to believe that income chargeable to tax has escaped assessment. Unless the 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 and respectfully following the judgment of the Hon’ble High Court of Delhi in the case of Pr. Commissioner of Income Tax-4 vs. G&G Pharma India Ltd. (supra) we hold that the reopening of the case of the assessee for the assessment year is bad in law. In the circumstances, no interference is called with the order of the Ld. CIT (A).
In the result the appeal filed by the Department is dismissed.