NARMADA CONCAST PRIVATE LIMITED,BHAVNAGAR vs. THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(1), AHMEDABAD

Narmada Concast Pvt. The DCIT, Limited Central Circle-1(1), Survey No. 159/160 Vs Ahmedabad Vill, Malpar, Gogha, Bhavnagar (Respondent) PAN: AAECN1728P (Appellant) Assessee Represented: Shri Parimalsinh B. Parmar & Shri Kushal Fofaria, ARs. Revenue Represented: Ms. Saumya Pandey Jain, Sr.D.R. Date of hearing : 02-11-2023 Date of pronouncement : 03-01-2024 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-

This appeal is filed by the Assessee as against the appellate order dated 16.12.2022 passed by the Commissioner of Income Tax (Appeals)-11, Ahmedabad arising out of the reassessment order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2013-14. Page No 2 Narmada Concast Pvt. Ltd. vs. DCIT

3. Aggrieved against the assessment order, the assessee filed an appeal before Commissioner of Income Tax (Appeals.). Before Ld. CIT(A) assessee filed detailed submissions both on the validity of reopening of the assessment and merits of the case. The Ld. CIT(A)

Page No 4 Narmada Concast Pvt. Ltd. vs. DCIT upheld that the reopening of assessment is good in law. However on merits of the case, as they were double entries of the loan transaction, thereby restricted the additions of Rs.50,00,000/- and deleted the addition of Rs. 50,00,224/-.

4. Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal:

1. In law and in the facts and circumstances of the appellant's case, the Ld. CIT (A) has erred in dismissing the appellant's grounds of appeal challenging the validity of the assessment order passed by the Assessing Officer u/s. 147 of the Income Tax Act 1.1 in law and in the facts and circumstances of the appellant's case, the Ld. CIT (A) ought to have appreciated that having regard to the following, the order passed u/s. 147 was bad in law:-

(a) The Assessing Officer had not passed an order disposing of the objections filed before him challenging the validity of the proceedings u/s 147 and thus, his action of passing the assessment order u/s. 147 was not valid.

(b) The re-assessment proceedings u/s 147 were initiated merely on the basis of report received from DDIT. Kolkatta without application of his own mind before issue of notice u/s. 148. This can be appreciated from the fact that he had considered the cash credit of Rs 1,00,00,000/- which includes duplication to the extent of Rs. 50,00,000/-

(c) The appellant was having its office at Bhavnagar and was being assessed at Bhavnagar. No notice for centralization of case providing an opportunity u/s. 127 (1) and 127 (2) was provided, even the order u/s. 127 was not received by the appellant. In the circumstances, the jurisdiction assumed by the Assessing Officer at Ahmedabad for initiating proceedings u/s. 148 was not valid

(d) The notice u/s. 148 was issued based on the material and facts gathered by DDIT, Kolkatta in the course of search at Banka Group and in such circumstances, the action could not be taken u/s.148, but could be u/s. 153C of the Act. 1.2 Having regard to the facts and circumstances of the appellant's case, the Hon'ble ITAT may please hold the assessment order u/s. 147 to be invalid.

Page No 5 Narmada Concast Pvt. Ltd. vs. DCIT

2. In law and in the facts and circumstances of the appellant's case, the Ld CIT (A) has erred in upholding the addition u's. 68 made by the Assessing Officer to the extent of Rs. 50,00,000/- 2.1. Having regard to the facts and circumstances of the appellant's case, the Ld CIT (A) ought to have appreciated, in the present case that there was no justification for making addition uls. 68 for the following reasons-

(a) The identity of the creditor was established in the facts of the case in as much as name and address of the creditor and PAN was available.

(b) The genuineness of transaction is established in as much as the amount was received by banking channel and the details of the bank account of the creditor, their cheque number by which the amount was received was available.

(c) The fact that the amount was received by banking channel established that the creditor has source for giving loan to the appellant and the appellant could not have details of such source.

(d) This was the first year of incorporation of the appellant and in the circumstances, the appellant could not have generated any unaccounted funds which would result into source of loan received from the creditor.

(e) Having regard to the facts and circumstances of the appellant's case, the Hon'ble ITAT may be pleased to delete the addition confirmed by the CIT (A) as above 3. The appellant craves leave to add to amend or to raise any further grounds of appeal as case may arise.

5. Ld. Counsel Shri Parimalsinh B. Parmar appearing for the assessee submitted before us a brief written submissions both on reopening of assessment and merits of the case and also two Paper Books containing various submissions filed before the Lower Authorities and the Ld. CIT(A). Ld. Counsel also filed a compilation of case laws in support of its arguments. Thus Ld. Counsel pleaded the reasons recorded by the Assessing Officer are absolutely vague, scanty and non-specific. The Assessing Officer merely relied upon investigation report of Banka Group supplied by the Investigation Wing of the Income Tax Department. There is no independent application of mind by the A.O. and no reason to believe was Page No 6 Narmada Concast Pvt. Ltd. vs. DCIT recorded by the Assessing Officer before initiating the reassessment proceedings. Thus it is to be held that the reopening of assessment is merely on the basis of “borrowed satisfaction” which is not justified under the law. On merits of the case, the A.O. failed to consider that the above loan was repaid by the assessee in the Assessment Year 2018-19 that too before the date of search in the case of Banka Group. The very same Assessing Officer has accepted the repayment of loan in A.Y. 2018-19 while framing assessment. Thus no addition is to be made in the present Assessment Year 2013-14 on account of cash credit and relied upon Jurisdictional High Court Judgment in the case of CIT vs Ayachi Chandrashekhar Narsangji (2014) 221 Taxmann.146 and PCIT vs Ambe Tradecorp (P.) Ltd. (2022) 145 taxmann.com 27. Thus Ld. Counsel pleaded that the entire reassessment itself is baseless and against the provisions of law and therefore the same is liable to be quashed and allow the assessee appeal.

6. Per contra, Ld. Sr. D.R. Ms. Saumya Pandey Jain appearing for the Revenue supported the order passed by the Lower Authorities and submitted that the company KCPL has shown total income of Rs. 1162/- in the Assessment Year 2013-14 whereas loan given to the assessee was Rs.50,00,000/- through banking channel. Thus the assessee failed to prove creditworthiness of the creditor and genuineness of loan transaction as envisaged u/s. 68 of the Act. Similarly, the assessee has not filed the original return within the due date prescribed u/s. 139(1) of the Act and also filed the Return of Income nine months after the issuance of 148 notice. Therefore the assessee’s objection of reopening of assessment was clearly Page No 7 Narmada Concast Pvt. Ltd. vs. DCIT dismissed by the Ld. A.O. following Supreme Court Judgment in the case of GKN Driveshafts (India) Ltd. and Jurisdictional High Court in the case of Sahakari Khand Udyog Mandal Ltd. Therefore the reopening of assessment is correct in law and pleaded to dismiss the assessee appeal.

7. We have given our thoughtful consideration and perused the materials available on record. To adjudicate the Jurisdictional issue of reopening of assessment, it is necessary to reproduce the “reasons recorded” by the Assessing Officer which is running to three pages as follows:

2. Brief details of the information collected / received by the A.O. A search & seizure/survey action in the case of Banka Group was conducted on 21/05/2018. Based on the findings gathered and subsequently brought on records, it was found that Sh. Mukesh Banka was the key person/controlling person who look after day to day financial affairs and accommodation eritry business of Banka Group. During the course of post search verification of seized/ impounded materials, various paper/ shell companies controlled and managed by Sh. Mukesh Banka were identified. All these companies were categorically acted by Sh. Mukesh Banka as paper/ shell companies controlled and managed by him for the purpose of providing accommodation entries in the nature of bogus unsecured loans or in other forms. Following the lead as obtained from the statements of Sh. Mukesh Banka and the materials seized during the course of search operation, the bank accounts of the paper/ shell companies, controlled and managed by Sh. Mukesh Banka was requisitioned from respective banks and analysed. On verification of the bank accounts of paper /shell companies of Banka Group, various beneficiaries have been identified who have obtained accommodation entry in the nature of bogus unsecured loan or in other forms, from the paper / shell companies of Banka Group.

Page No 8 Narmada Concast Pvt. Ltd. vs. DCIT

The assessee is identified as beneficiaries and details of the transactions is hereunder:

ACCT -Name of ACCT_NUM BAN TRAN_DTAE TRANSACTI BENEFICIARY BENEFICI BENEFICIARY IFSC Mukesh Banka K ON NAME ARY PAN ACC NO. Company AMOUNT KOTIRATAN 0190021001240 UCO 22-02-2013 2000056 NARMADA AAECN17 03240160100 CORPO COMMOSALES 6 BAN CONCAST PVT 28P 0292 RATI ON PVT LTD K LTD BANK (CORP0 000324) KOTIRATAN 0190021001240 UCO 22-02-2013 2000056 NARMADA AAECN17 03240160100 CORPO COMMOSALES 6 BAN CONCAST PVT 28P 029 RATI ON PVT LTD K LTD BANK (CORP0 000324 KOTIRATAN 0190021001240 UCO 22-02-2013 3000056 NARMADA AAECN17 03240160100 CORPO COMMOSALES 6 BAN CONCAST PVT 28P 029 RATI ON PVT LTD K LTD BANK (CORP0 000324 KOTIRATAN 0190021001240 UCO 22-02-2013 3000056 NARMADA AAECN17 03240160100 CORPO COMMOSALES 6 BAN CONCAST PVT 28P 029 RATI ON PVT LTD K LTD BANK (CORP0 000324 Total 10000224 Hence, the amount Rs 1,00,00,224/- as discussed in para 4 above exceeds the maximum amount which is not chargeable to tax and has escaped assessment within the meaning of section 147 of the Act.

In this case, no return of income was filed for the year under consideration accordingly, in this case, no assessment was made. On the basis of the details mentioned in para no. 4, I have reason to believe that the amount of Rs. 1,00,00,224/- has escaped assessment within the meaning of section 147 of the Act and is a fit case for issuing notice u/s. 148 of the Act.

Page No 10 Narmada Concast Pvt. Ltd. vs. DCIT

7. Escapement of income chargeable to tax in relation to any asset (including financial interest in any entity) located outside India.: No such details as per record of this office.

8. Applicability of the provisions of section 147/151 to the facts of the case: In the instant case, no return of income was filed for the year under consideration accordingly, in this case, no assessment was made and the only requirement to initiate proceeding u/s 147 of the Act is the reason to believe which has been recorded in above para 6. It is pertinent to mention here that in this case the assessee has chosen not to file return of income for the year under consideration although the total income of the assessee had exceeded the maximum amount which is not chargeable to tax as discussed above and the assessee was assessable under the Act. In view of the above, the provisions of clause (a) of explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. In this case more than four years have lapsed form the end of assessment year under consideration. Hence, necessary sanction to issue notice u/s 148 is being obtained separately from the Pr. Commissioner of Income Tax as per the provisions of section 151 of the Act.” 7.1. On perusal of the above “reasons recorded” by the Assessing Officer makes it very clear that the he had reason to conclude that the assessee had entered into high value financial transactions of Rs. 1,00,00,224/- facilitating bogus accommodation entries during the year as reported in the investigation report of Banka Group. Thus the Assessing Officer though he recorded reason to conclude but accepted the report of the Investigation Wing of the Department in the case of Banka Group. The Assessing Officer has failed to verify the transaction recorded by the Investigation Wing which are double entries made for the same transactions of Rs. 20,00,056/- and Rs. 30,00,056/-. Though the A.O. records the unsecured loan of Rs. 50,00,000/- received by the assessee from M/s. KCPL, however upheld the double entry addition of Rs. 1,00,00,224/ as Page No 11 Narmada Concast Pvt. Ltd. vs. DCIT the undisclosed income of the assessee. The Ld. A.O. failed to consider the repayment of above loan by the assessee during the assessment year 2018-19 which was not disputed, while framing the assessment order for the assessment year 2018-19 by the very same Assessing Officer. Thus in our considered view, the Ld. A.O. has simply accepted the information given by DGIT which is reproduced in the reasons recorded, he has not formulated “his own reason to belief” that any income chargeable to tax has escaped assessment. The Ld. A.O. ought to have seen the double entry of the loan transactions with bank entry details and then formulated “his own reason to belief” but simply followed the information given by DGIT, which is nothing but “borrowed satisfaction” and is against the provision of Section 147 of the Act. Therefore the same is liable to be quashed.

7.2. The above view of ours are supported by the Hon’ble Jurisdictional High Court Judgment in the case of Bharatkumar Nihalchand Shah vs ITO in SCA No. 5353 of 2022 vide judgment dated 07.03.2023 held as follows: “…6.6 On the basis of the propositions laid down in different decisions by the supreme court above referred and others, the following legal principles on the point in issue may be enlisted, (i) “Reasons” are of paramount importance. “Reasons” are heartbeat of every conclusion. It introduces clarity in any order. Without the reasons, the order is lifeless. (ii) The concept of reasoned judgment has become an indispensable part of basic rule of law and, in fact, is a mandatory requirement of procedural law. (iii) It is only clarity of thoughts that leads to proper reasoning, which becomes a foundation of a just and fair decision.

Page No 12 Narmada Concast Pvt. Ltd. vs. DCIT (iv) Insistence for recording of reasons is intended to subserve the wider principle that justice must not only be done but it must also seen to have been done. The reasons are requirement for ensuring judicial accountability. (v) Reasons reflect candidness on part of decision maker. The decision making process becomes transparent by virtue of reasons. In absence,, it is impossible to know whether the person deciding the issue is faithful to the doctrine of precedent or to the principles of incrementalism. (vi) Reasons in support of decisions must be cogent, clear and succinct. A pretense of reasons or “rubber-stamp reasons” cannot be equated with a valid decision-making process. (vii) Reasons also facilitate the process of judicial review by superior courts.

Page No 13 Narmada Concast Pvt. Ltd. vs. DCIT 7.4 The cryptic way of recording of reasons like found in the instant case, would render the exercise of powers vitiated. With such vague reasons the respondent could be said to have failed to demonstrate that there was any escapment of income chargeable to tax. He could demonstrate such element, if he gives reasons for the same.

8. In the aforesaid view, notice issued to the petitioner under section 148 of the Act in respect of the Assessment Year 2015-2016 is liable to be set aside on the aforesaid ground alone.” 7.3. Similarly in the case of Surani Steel Tubes Ltd. vs Ito (2022) 156 taxmann.com 139, the Hon’ble Gujarat High Court held as follows: “…..10. This Court has also taken into consideration the affidavit-in-reply filed by the Income-tax Officer, Ward -1. Gandhinagar. On appreciation of contents of the same, we could note that the entire base for reopening assessment is on the premise that there was "information" supplied by the Investigation Wing and the Assessing Officer has made cursorily reference to high value transaction of Rs.26,42,027/- as well as also referred to accommodation entry entered upon by the petitioner Company by way of bogus sales/purchases/ fictitious loans etc. Thus, it appears that the reasons for reopening of the assessment in the case of petitioner Company for annual assessment year 2014-15/2015-16 by the Assessing Officer is based on the borrowed satisfaction and the Assessing Officer has not applied his independent mind to arrive at the conclusion that there was failure on the part of the assessee to disclose fully and truly all material facts. In fact, the Assessing Officer is under obligation to arrive at such conclusion that the assessee has failed to disclose all material facts and has to form independent opinion resulting into "reason to believe with regard to escapement of income chargeable to tax in case of the petitioner. During the course of hearing, learned Senior Advocate for the Department has tried to improvise by referring to the original file of the Department to emphasize that there is tangible material on record to show that the petitioner Company has made purchase transaction of Rs.26,42,027/- and has availed accommodation entry by way of bogus sales/purchases/fictitious loans etc. with Disman Group of Company. In our opinion, in absence of specific details as regards particulars of nature of transaction basic details of information, clarity with regard to name of person with whom such transaction has been entered into, goes to the very root of the matter. The sole object of providing reasons for reopening of the assessment is to prima facie supply the relevant material to the assessee to meet with his case and at the same time, it reflects the basic ingredients of "reason to believe" for Assessing Officer to assume the jurisdiction under sections 147 and 148 of the Income-tax Act. At the same time, such non- recording of specific details lead us to belief that without proper application of mind, the Assessing Officer has solely and mechanically relying upon the information received from Investigation Wing, has issued impugned Page No 14 Narmada Concast Pvt. Ltd. vs. DCIT notice. Thus we are not convinced with the manner in which satisfaction is arrived at by the respondent, as recorded in the reasons supplied to the petitioner Company, for assuming jurisdiction to reopen the assessment of relevant A.Y. 2014-15/2015-16.

Page No 16 Narmada Concast Pvt. Ltd. vs. DCIT