M/S. GOODLUCK COMMERCIAL LTD.,NEW DELHI vs. ITO, NEW DELHI

disposed of both the appeals by this common order.

DIT (Investigation), New Delhi, vide letter dated 05.02.2007 that assessee had taken accommodation entry of Rs.4,60,000/- from Dupas Leasing & Finance Pvt. Ltd. and Etisha Finance & Investment Pvt. Ltd. on 3.4.2000. The above information and enquiries made by the Investigation Wing led to the belief that the transaction is clearly an accommodation entry and belief was formed that assessee had taken accommodation entry of Rs.4,60,000 in lieu of unaccounted income of the assessee. The A.O. accordingly, recoded reasons under section 148 of the I.T. Act and issued notice upon assessee which was served. The assessee stated that return already filed may be treated as return having been filed in response to notice under section 148 of the I.T. Act.

While carrying out the enquiries in the case of entry operations, the Investigation Wing, New Delhi, had recorded statement of Shri Pradeep Kumar Jindal under section 131 of the I.T. Act on 15th April, 2004, in which, he had admitted that through the various companies floated by him, he had carried out the business activities of providing bogus accommodation entries. The A.O. after giving an opportunity of being heard to the assessee, made addition of Rs.4,60,000/- under section 68 of the I.T. Act for providing such accommodation entries. The income of the assessee was assessed at Rs. 5,82,630/- vide order dated 03.12.2008 u/s. 148/143(3) of the I.T. Act, 1961. In appeal, Ld. CIT(A) confirmed the addition in dispute and dismissed the appeal of assessee.

Annex.A M/S. GOODLUCK COMMERCIALS LTD. (AAACG4081C) ASSESSMENT YEAR – 2001-02

The assessee filed its return of income for the year under consideration vide receipt No.490 dated 29.10.2001 declaring income of Rs.122630/-.

As per information received from the Office of the DIT (Inv.), New Delhi vide letter No.DIT(Inv.)-I/2006-07/AE/1322 dated 31.01.2007 and No.1536 dated 05.02.2007, the assessee company has taken following accommodation entries totaling to Rs.4,60,000/- Value of Dt. of entry From whom taken entry taken Rs.2,53,000 19.01.2000 Ika Processors & Distributors Pvt. Ltd., (A/c No.19041 with UBI, Azadpur). Rs.2,07,000 15.01.2000 Riya Investment (A/c No.28265 with UBI, Azadpur)

The said amount has been credited in assessee’s bank accounts maintained with UCO Bank, Model Town. Apart from the above, the assessee had also transferred funds of Rs. 11,75,000/- from its bank account maintained with UCO Bank, Model Town to Bank of Baroda, Shalimar Bagh vide instrument No. 854337 dated 21.7,.2000. The said transaction is not verifiable from the return and on investigation made by the investigation wing it has been found that the assessee is a beneficiary of taking the aforesaid accommodation entry. 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 by way of accommodation entry, therefore, I have reason to believe that the income amounting to Rs. 4,60,000/- has escaped assessment. The escapement of income has been clearly on account of failure on the part of the assessee to truly and fully disclose all material facts necessary for assessment. Thus, it is a fit case for initiation of proceedings u/s. 147 of the Act. Further, the Hon’ble Apex Court in its various judgments held that possession of specific information by the Assessing Officer is sufficient to re-open the assessment proceedings.

Submitted for kind perusal and approval as per provisions of Section 151(2) of the Act. Sd/- ITO, Ward 12(2), New Delhi”

5.1. Learned Counsel for the Assessee has filed copies of the ledger account and letters of various parties who are mentioned in the reasons recorded above who have allegedly provided accommodation entry to assessee to show that either the amounts were opening balance relating to earlier years, which were due to the assessee on behalf of the different parties. The Hon’ble Delhi High Court in the case of Pr. CIT vs. Meenakshi Overseas Pvt. Ltd., (supra) in paras 19 to 38 held as under :

“19. A perusal of the reasons as recorded by the AO reveals that there are three parts to it. In the first part, the AO has reproduced the precise information he has received from the Investigation Wing of the Revenue. This information is in the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material.

Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom.

The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing.

28.1. In Signature Hotels Pvt. Ltd. v. Income Tax Officer (supra), the reasons for reopening as recorded by the AO in a proforma and placed before the CIT for approval read thus:

"11. Reasons for the belief that income has escaped assessment.- Information is received from the DIT (Inv.-1), New Delhi that the assessee has introduced money amounting to Rs. 5 lakh during the F.Y. 2002-03 relating to A.Y. 2003-04. Details are contained in Annexure. As per information amount received is nothing but accommodation entry and assessee is a beneficiary."

28.2. The Annexure to the said proforma gave the Name of the Beneficiary, the value of entry taken, the number of the instrument by which entry was taken, the date on which the entry was taken, Name of the account holder of the bank from which the cheque was issued, the account number and so on.

28.3. Analysing the above reasons together with the annexure, the Court observed:

"14. The first sentence of the reasons states that information had been received from Director of Income-Tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lacs during financial year 2002-03 as per the details given in Annexure. The said Annexure, reproduced above, relates to a cheque received by the petitioner on 9th October, 2002 from Swetu Stone PV from the bank and the account number mentioned therein. The last sentence records that as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary.

to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the information received from the Director of Income-Tax (Investigation) and arrive at a belief whether or not any income had escaped assessment."

28.4. The Court in Signature Hotels Pvt. Ltd. v.

Income Tax Officer (supra) quashed the proceedings under Section 148 of the Act. The facts in the present case are more or less similar. The present case is therefore covered against the Revenue by the aforementioned decision.

29.1. The above decision can be contrasted with the decision in AGR Investment v. Additional Commissioner of Income Tax (supra), where the 'reasons to believe' read as under:

"Certain investigations were carried out by the Directorate of Investigation, Jhandewalan, New Delhi in respect of the bogus/accommodation entries provided by certain individuals/companies. The name of the assessee figures as one of the beneficiaries of these alleged bogus transactions given by the Directorate after making the necessary enquiries. In the said information, it has been inter-alia reported as under:

"Entries are broadly taken for two purposes:

2. To inflate expense in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes.

It has been revealed that the following entries have been received by the assessee:...."

29.2. The details of six entries were then set out in the above 'reasons'. These included name of the beneficiary, the beneficiary's bank, value of the entry taken, instrument number, date, name of the account in which entry was taken and the account from where the entry was given the details of those banks. The reasons then recorded:

"The transactions involving Rs. 27,00,000/-, mentioned in the manner above, constitutes fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income/income from other sources of the assessee company, which has not been offered to tax by the assessee till its return filed.

On the basis of this new information, I have reason to believe that the income of Rs.27,00,000/- has escaped assessment as defined by section 147 of the Income Tax Act. Therefore, this is a fit case for the issuance of the notice under section 148."

29.3. The Court was not inclined to interfere in the above circumstances in exercise of its writ jurisdiction to quash the proceedings. A careful perusal of the above reasons reveals that the AO does not merely reproduce the information but takes the effort of revealing what is contained in the investigation report specific to the Assessee. Importantly he notes that the information obtained was 'fresh' and had not been offered by the Assessee till its return pursuant to the notice issued to it was filed. This is a crucial factor that went into the formation of the belief. In the present case, however, the AO has made no effort to set out the portion of the investigation report which contains the information specific to the Assessee. He does not also examine the return already filed to ascertain if the entry has been disclosed therein.

30.1. In Commissioner of Income Tax, New Delhi v.

HighgainFinvest (P) Limited (2007) 164 Taxman 142 (Del) relied upon by Mr. Chaudhary, the reasons to believe read as under:

"It has been informed by the Additional Director of Income Tax (Investigation), Unit VII, New Delhi vide letter No. 138 dated 8th April 2003 that this company was involved in the giving and taking bogus entries/ transactions during the financial year 1996-97, as per the deposition made before them by Shri Sanjay Rastogi, CA during a survey operation conducted at his office premises by the Investigation Wing. The particulars of some of the transaction of this nature are as under:

Date Particulars of chequeDebit Amt. Credit Amt 18.11.96 305002 5,00,000

Through the Bank Account No. CA 4266 of M/s. Mehram Exports Pvt. Ltd. in the PNB, New Rohtak Road, New Delhi. Note: It is noted that there might be more such entries apart from the above.

The return of income for the assessment year 1997-98 was filed by the Assessee on 4th March 1998 which was accepted under Section 143 (1) at the declared income of Rs. 4,200. In view of these facts, I have reason to believe that the amount of such transactions particularly that of Rs. 5,00,000 (as mentioned above) has escaped the assessment within the meaning of the proviso to Section 147 and clause (b) to the Explanation 2 of this section.

Submitted to the Additional CIT, Range -12, New Delhi for approval to issue notice under Section 148 for the assessment year 1997-98, if approved."

30.2. The AO was not merely reproducing the information received from the investigation but took the effort of referring to the deposition made during the survey by the Chartered Accountant that the Assessee company was involved in the giving and taking of bogus entries. The AO thus indicated what the tangible material was which enabled him to form the reasons to believe that income has escaped assessment. It was in those circumstances that in the case, the Court came to the conclusion that there was prima facie material for the AO to come to the conclusion that the Assessee had not made a full and true disclosure of all the material facts relevant for the assessment.

Independent Media P. Limited (supra) the Court in similar circumstances invalidated the initiation of the proceedings to reopen the assessment under Section 147 of the Act.

Commissioner of Income Tax 378 ITR 421 (Del) it was held that "therefore, even if it is assumed that, in fact, the Assessee’s income has escaped assessment, the AO would have no jurisdiction to assess the same if his reasons to believe were not based on any cogent material. In absence of the jurisdictional pre-condition being met to reopen the assessment, the question of assessing or reassessing income under Section 147 of the Act would not arise."

5.2. The report of the Investigation Wing might have constituted material on the basis of which the A.O. formed the reasons to believe, the process of arriving at such satisfaction, would not be a mere repetition of the report of Investigation Wing.

In the assessee’s case, the crucial link between the information made available to the A.O. and the formation of the belief was absent. The “reasons to believe” recorded were not reasons but only conclusions and the reproduction of the conclusion in the Investigation Report received from the Director of Investigation. It was a borrowed satisfaction. The expression ‘accommodation entry’ was used to describe the ‘information’ set-out without explaining the basis for arriving at such conclusion. The basis for the statement that entry was given to the assessee to introduce its unaccounted money, was not disclosed. Who was the accommodation entry giver and how he could be said to be an entry operator were not mentioned. The source for all the conclusion was the Investigation Report. The tangible material which formed the basis, for the belief that ‘income had escaped the assessment’ must be evident from reading of the reasons. Learned Counsel for the Assessee filed copy of the ledger account and letters of the parties who are named in the reasons recorded under section 148 of the I.T. Act, to show that the amounts were due to the assessee from earlier years and the amounts in question are repayment of the debts in assessment year under appeal. The A.O. recorded incorrect facts in reasons for reopening of assessment. The reasons failed to demonstrate that the link between the tangible material and the formation of the reasons to believe that income has escaped assessment. The A.O. had not independently considered the tangible material which formed the basis for the reasons to believe that income had escaped assessment. The A.O. merely reproduced information received from Investigation wing and enquiries conducted by them and then, straightaway came to the conclusion that ‘Income chargeable to tax has escaped assessment’. In the present case, as already noticed, the reasons to believe contained not the reasons but the conclusion of the A.O. There is no independent application of mind by the A.O. to the tangible material which form the basis of the reasons to believe that income has escaped assessment. The conclusion of the A.O, at best, are reproduction of the conclusion of the Investigation report. Thus, it is clearly a borrowed satisfaction. The issue is, therefore, covered in favour of the assessee by judgment of the Hon’ble Delhi High Court in the case of Pr. CIT vs. GAndG Pharma India Ltd., (supra) and Meenakshi Oveseas Pvt. Ltd., (supra) as well as ITAT, SMC, Delhi decision dated 13.9.2017 passed in for the assessment year 2000-01 in assessee’s own case. The reopening of the assessment, thus, is bad in law and cannot be sustained in the facts and circumstances of the case. I, accordingly, set aside the orders of the authorities below and quash the reopening of the assessment under section 147/148 of the I.T. Act. Resultantly, the additions made in the re-assessment order stands deleted. In view of these findings, there is no need to decide the appeal of assessee on merits.