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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM
O R D E R
Per Arun Khodpia, AM :
The assessee has filed this appeal against the order passed by the CIT(A)-3, Bhopal, dated 06.07.2021 for the assessment year 2012-2013, on the following grounds :-
1. That on the facts and in the circumstances of the case and in law, the order dated 06/07/2021 passed u/s 250 of the Act and the assessment order passed u/s 144 r.w.s. 147 of the Act dated 30/12/2019 are illegal and void ab initio.
2. That on the facts and in the circumstances of the case and in law, the first appellate authority erred in not confirming that the notice issued u/s 148 of the Act dated 28/03/2019 is bad in law. 2.1 That on the facts and in the circumstances of the case and in law, the first appellate authority erred in not holding that the notice issued u/s 148 of the Act dated 28/03/2019 is time barred by limitation in view of first proviso to section 147 of the Act. 2.2 That on the facts and in the circumstances of the case and in law, the first appellate authority erred in confirming the reason recorded u/s 148(2) of the Act though the same is only a change of opinion on account of borrowed satisfaction without application of mind by the assessing officer.
2 2.3 That on the facts and in the circumstances of the case and in law, the first appellate authority erred in allowing the reason to be valid even though the reason and the conclusion drawn by the assessing officer in the assessment order are contradictory. 3 That on the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming addition made by the assessing officer u/s 68 of the Act of Rs. 10,70,75,000/-. 4 The appellant craves to add, alter or delete any of the grounds of appeal during the course of appellate proceedings.
2. Brief facts of the case are that the assessee is a company and filed its return of income on 22.09.2012 declaring total income at Rs.65,700/-. The case was selected for scrutiny under CASS. The assessment order u/s 143(3) of the act was passed on 30.03.2015 determining assessed income at Rs.2,53,340/-. Subsequently, as per the information received from ADIT(Inv.)-III, Raipur that a search and seizure action was conducted in the case of R.K. Transport and Construction Ltd. (RKTC Group) on 22.010.1019, During the course of search and seizure, Shri Suresh Agrawal, director of M/s. Rashi Steel & Power Ltd., has admitted that he has provided accommodation entries in form of share capital and unsecured loans to RKTC Group of companies and other companies through various paper/shell/jamakharchi Kolkata based companies. On the beneficiary company is M/s Jayton Trading Pvt. Ltd. To whom the said Shri Suresh Agrawal had provided accommodation entries for share capital and share premium. The AO found that the share capital and premium had been received by the assessee company from the Kolkata based shell company of Rs.10,70,75,000/-, which has been incorporated by the AO in the assessment order at page
2. Accordingly, the case was reopened u/s 147 after recording the reasons and obtaining necessary 3 approval and notice u/s 148 was issued on 28.03.2019. During the course of re-assessment proceedings, the AO found that the assessee company had capitalized its own unaccounted and untaxed funds brought into its book through various shell and paper companies in the form of share capital/premium without paying a single penny of tax. Accordingly, the AO made addition of Rs.10,70,75,000/- on account of share capital money and premium u/s 68 of the I.T. Act.
3. Against the order of the AO, the assessee appealed before the ld. CIT(A), however, the ld. CIT(A) dismissed the appeal of the assessee upholding the addition made by the AO u/s.68 of the Act.
Further aggrieved, the assessee is in appeal before the Tribunal.
Initiating the arguments, ld. AR of the assessee submitted that the assessment order passed u/s.144 r.w.s.147 of the Act 30.12.2019 was illegal and void ab initio for the reason that the notice issued u/s.148 of the Act dated 28.03.2019 was without permission, hence bad in law. It was also the submission that the first appellate authority has not considered the plea of the assessee for the notice issued u/s.148 of the Act dated 28.03.2019, which was barred by limitation in view of the first proviso to Section 147 of the Act though the same is only a change of opinion on account of satisfaction without application of mind by the AO. It is further submitted that the first appellate authority erred in allowing the reason to be valid even though the reason and the conclusion drawn by the AO in the assessment order are contradictory.
4 6. In support of the first contention of the assessee that the assessment order passed u/s.144 r.w.s.147 of the Act dated 30.12.2019 was illegal and void ab initio, ld. AR drew our attention to the documents pertaining to the reasons recorded by the ld. AO while issuing notice u/s. 148 of the Act. These documents were placed in the paper book of the assessee at page Nos.72 to 77. The documents are consisting of email communication dated 13.02.2023 by the assessee to DCIT, Central-2, Raipur having subject “application for providing copy of the original reason recorded u/s.148(2) of the Act and copy of the approval u/s.151 of the Act for the assessment year 2012-2013”. In response to said communications by the assessee, the DCIT, Central-2, Raipur has responded with an email on 21.02.2023 attaching therewith requisite information containing copies of documents regarding the reasons in initiating the proceedings u.s,148 of the Act and for obtaining the approval of the Pr.CIT/Addl.CIT. Copies of said documents are extracted hereunder for better appreciation of facts :-
5 6 7 7. Referring to the aforesaid documents, the ld. AR of the assessee had submitted that the notice u/s.148 of the Act was issued by the ld. AO i.e. the ITO Ward-6(3), Kolkata on 28.03.2019 having digital signature at the bottom right of the notice dated Friday, March 29, 2019 at 1.20 PM (the date in the digital signature was not legible since the next date to the date of notice i.e. 28th March, 2019 was Friday, therefore, it was deduced that the date of digital signature was 29th Day of March, 2019). Copy of the notice dated 28.03.2019 digitally signed on 29th March, 2019 is also extracted hereunder for completeness of the facts :-
8 8. According to the above extracted copy of notice, it was the submission of the ld. AR that the said notice was issued on 29th March, 2019, whereas as per the copy of documents furnished and extracted hereinabove, the satisfaction recorded and approved by the ld. Pr. CIT was signed by him on 30.03.2019. It is therefore, very clearly emanated from the records that the notice issued was prior to the mandatory approval of the Pr. CIT, which is sine qua non u/s.151 of the Act, Thus, the notice issued u/s.148 of the Act was illegal.
Ld. AR has placed reliance on the order of the Hon’ble Bombay High Court in the case of River Valley Meadows and Township (P.) Ltd. Vs. DCIT, reported in [2022] 134 taxmann.com 20 (Bombay), wherein it has been held that, “where notice under section 148 was issued to assessee on 25-6-2019 and prior mandatory approval of Additional CIT which was required under section 151 was dated 26-6-2019, section 148 notice so issued was illegal as there was no prior approval as required under section 151(2).” The ld. AR further relied on another judgment of the Hon’ble Bombay High Court in the case of Svitzer Hazira Pvt. Ltd. Vs. ACIT & Ors., passed in Writ Petition No.35545 of 2019, dated 21.12.2021, wherein the Hon’ble High Court has held as under :- 10. Mr. Sham Walve, learned Counsel for Respondent Nos.1 and 2, submitted that Respondent No.1 had initially granted prior approval physically. However, online approval was granted after that, which was uploaded by digital signature at 2.55 p.m. on 31/03/2019. He, therefore, submitted that there is substantial compliance of prior approval as contemplated by Section 151 of the Act 11. It must be noted that Sections 147 and 148 grant power to Revenue to reopen the earlier assessment and therefore Assessees are protected by safeguard against unnecessary 9 harassment. Prior approval as contemplated by section 151 operates as a shield from the arbitrary exercise of power by the Assessing Officer. The power of prior approval has been conferred on the superior Officer so that the superior Officer shall examine the reasons, material or grounds and adjudicate whether they are sufficient and adequate to the formation of necessary belief on the part of the Assessing Officer. It is, therefore, necessary for the superior Officer to apply his mind and record his reasons howsoever brief so that the Assessing Officer’s belief is well reasoned and bona fide. The remark on the part of superior authority must indicate application of mind by giving reasons for prior approval.
The legislature has advisedly used the expression ‘No notice shall be issued’ in section 151. The expression ‘No notice shall be issued ’ cannot be construed to mean post-facto approval. The expression “No notice shall be issued” reflects the intention of the legislature to indicate that prior approval is the sine qua non before issuance of notice under Section 148 of the Act. The purpose of insertion of expression ‘No notice shall be issued ' before issuing a notice of re-assessment is to avoid harassment to taxpayers and the arbitrary exercise of the power to reopen the assessment. It is introduced as an in-built safeguard by the legislature. Therefore, we have no doubt in holding that sanction to be granted by the authority under Section 151 has to be prior in point of time of issuance of notice under Section 148 of the Act.
13. In the facts of the present case, it is clear from the digital signature on the notice issued by Respondent No.1 that the notice was issued at 2.40 p.m. on 31/03/2019. The sanction by the authority under Section 151 was digitally signed at 2.55 p.m. on 31/03/2019. The explanation furnished by Respondent No. 1 in the order of disposing of objections that initially physical approval was granted and thereafter online approval was granted has not been supported by any material on record. We fail to understand the need to grant online approval at 2.55 p.m. if physical approval was already granted before 2.40 p.m. In the absence of valid explanation by cogent material, we cannot accept explanation by Respondent No.1 in the order of disposing of objections that physical approval was granted before issuance of notice under Section 148 of the Act.
With the support of the aforesaid judgments, the ld. AR of the assessee submitted that the ld. CIT(A) has not appreciated the claim of the assessee that the reopening was bad in law. However, following the ratio of law laid down by the Hon’ble Bombay High Court in the two cases relied upon (supra), it is abundantly clear that any approval or reasons 10 recorded after the issuance of notice is just a formality and without application of mind, the notice issued u/s.148 of the Act without having such approval in advance, is bad in law and illegal, therefore, the assessment framed on the foundation of such illegal notice, is also has no legs to stand in the eyes of law, therefore the same is unsustainable.
Second contention advanced by the Ld AR was that the reasons recorded by the Ld AO and approved by Ld PCIT-2, Kolkatta were not in accordance with the primary basis of the reopening viz. the statement of Shri Suresh Agarwal, one of the director of Rashi Steel and power Ltd. Such inconsistency in the reasons recoded was demonstrated by the Ld AR by drawing our attention to copies of satisfaction note for issue of notice u/s 153C for AY 2013-14 to 2019-20 to the assessee company dated 22.07.2021 (paper book page 78-79) and reasons recoded for initiating proceedings u/s 148 of the Act and approved by Ld PCIT-2, Kolkatta (paper book page 76). Copies of these pages are extracted hereunder for ready reference:-
11 12 13 12. On perusal of the aforesaid documents, it is revealed that, while recording the reasons u/s 148 of the Act, Ld AO has recoded that according to admission of Shri Suresh Agarwal, the assessee company M/s Jayton Trading Pvt. Ltd. is one of the beneficiary companies who has taken accommodation entry amount of Rs. 10,70,75,000/- in the form of Share Capital and unsecured loan, provide by Shri Suresh Agarwal through various shell/jamakhrchi companies managed and controlled by him and his employees, though, as per the satisfaction note u/s 153C, Ld AO has recorded that the assessee company was used by Shri Suresh Kumar Agarwal to provide accommodation entries to the RKTC Group of companies. Such contradictory observations by the revenue for the assessee company, wherein under one document, the assessee company was defined as beneficiary of the accommodation entries, on the other hand in another document it was considered as facilitator or conduit to the said transactions. To support this contention further Ld AR drew our attention to the copy of assessment order of Shri Suresh Agarwal for the AY 2012-13 dated 30.12.2019, passed by ACIT, Central Circle -1, Raipur, who was the AO of assessee company also. On perusal of para 2 of the said assessment order of Shri Suresh Agarwal, it is categorically described by the Ld AO that during the course search & seizure Shri Suresh Agarwal, director of Rashi Steel & Power Ltd has admitted that he got commission @ 0.75% in cash for arranging the accommodation entries to various beneficiaries though the companies in which the employees are director and he controlled and managed these 14 companies and directors. A list of such companies was also produced in the said assessment order wherein at number 10 name of the assessee company was also mentioned. Ld AR also shown us the copy of statements of Shri Suresh Agarwal affixed in his assessment order, wherein he answered the queries of the department on similar line. Ld AR on the basis of aforesaid arguments has submitted that the reasons recorded u/s 148 by the Ld AO were constructed on the foundation of misrepresentation of the actual fact, in absence of any reason to believe that the income escaped assessment, this also is a strong reason for which the notice issued and proceedings initiated u/s 148 are liable to be held as bad in law.
Third Contention raised by the Ld AR was that the assessee has truly and fully disclosed all the material information as mandated by the “1st proviso” under the provisions of Section 147 of the Act, therefore, there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. It was the submission of the Ld. AR that reasons recorded by the Ld. AO were also silent on this issue, having no charge or indication that there was a failure on the part of assessee, therefore, the reasons recorded for initiating the proceedings u/s.148 of the Act for which notice was issued after a period of 4 years on 28.03.2019, therefore, on this count also the reopening proceedings initiated were bad in law and deserves to be set-aside.
15 14. The forth contention raised by the Ld. AR was that during the assessment proceedings u/s.143(3) of the Act, the A.O has conducted enquiries pertaining to the issue of share capital, have also issued notices u/s.133(6) of the Act to the parties concerned and necessary replies along with supporting evidences were submitted before the A.O. Copies of such evidences were furnished at paper book Page No.6 to 60. Since the issue was discussed and deliberated at length during the original assessment proceedings, it was the submission that reopening on the same issue is tantamount to change of opinion which is not permissible under the provisions of the Act.
In contradiction to the submission of the ld. AR of the assessee, ld. CIT-DR submitted that the approval granted by the ld. Pr.CIT on the reason to believe drafted by the ITO, Ward-6(3), Kolkata, was very much according to the procedures laid down in the Act, proper note was also prepared stating the reason to believe that there was an escapement of assessment within the meaning of Section 147 of the Act for the assessment year 2012-2013 placed as Annexure-A duly signed by the AO and the Pr.CIT-2, Kolkata has also signed the same but due to oversight the date was wrongly mentioned as 30.03.2019, which was just an error and such technical mistakes should be ignored in the interest of substantial justice. Regarding the contention of the Ld. AR that there was no failure to disclose material facts on the part of the assessee cannot be subscribe to, when certain information which was revealed during the search and seizure proceedings, on account of fresh information received 16 in the form of statement of Shri Suresh Agarwal, pertaining to transaction of accommodation entries in the garb of share capital and unsecured loan, it cannot be said that all the material information required for assessment were duly disclosed by the assessee. It is therefore submitted that the reopening u/s.148 in the present case beyond the period of four years was very much fall within the scop of the “1st Proviso” to Section 147 of the Act, thus, it was validly initiated.
With regard to the contention of the assessee that the reasons recorded u/s.147 and the satisfaction note issued u/s.153C of the Act, the narration of the reasons recorded might be different but the intent of the revenue was the same that bogus share capital/ premium and unsecured loans through Kolkata based shell companies were transacted therefore, the same should be brought within the ambit of tax net, hence the same needs to be added to the income of assessee as unexplained income for the relevant year in the interest of justice wherein substantial loss to the exchequer was caused on account of such activities by the assessee company.
Regarding change of opinion on account of dealing with the same matter by the A.O during the original assessment u/s.143(3), it is the submission of Ld CIT-DR that since new facts have emerged during the search and seizure proceedings which were not before the Ld. AO at the time of original assessment, the enquiries so conducted cannot be considered as proper or adequate enquiries, therefore, there was no 17 infirmity in the process of initiating the proceedings u/s.148 of the Act. In terms of these submissions Ld. CIT-DR argued that the matter should be decided on merits of the case instead of considering the technicalities. It was, therefore, the prayer that the substantial justice shall be given preference over the pitted technicalities, the case should be decided on its merits.
We have considered the rival submissions, perused the material available on record and the case laws pressed into to support the contention of the assessee by the ld. AR. On perusal of the records, admittedly the notice issued u/s.148 of the Act dated 28.03.2019, digitally signed on 29.03.2019, copy of approval by the ld. Pr.CIT-2, Kolkata was duly signed and dated 30.03.2019, it is undisputed fact that the approval granted by the ld. Pr. CIT was after the issuance of notice u/s.148 of the Act. Therefore, it is apparent that notice was issued without prior mandatory approval as required u/s.151 of the Act. Referring to the judgment in the case of River Valley Meadows and Township (P.) Ltd. (supra), it is categorically observed that the notice u/s.148 of the Act one day before the approval u/s.151 of the Act was illegal and invalid notice. The observation of the Hon’ble Bombay High Court in the case of Svitzer Hazira Pvt. Ltd. (supra), the Hon’ble High Court has taken very categorical and stringent view that notice issued at 2.40 PM and the approval granted on 2.55 PM of the same day i.e. on 31.03.2019, was not acceptable and, therefore, the explanation of the department in absence of any cogent material on record in the said case, was rejected by the Hon’ble High 18 Court. While deciding this issue, the Hon’ble High Court’s view guides us on the issue that even a gap of 15 minutes between the issuance of notice and the approval on the reasons to believe should be considered as complete non-application of mind on the part of the authority granting sanctions u/s.151 of the Act. Since, there is no prior sanction granted by the Pr.CIT in the present case before issuance of notice u/s.148 of the Act, therefore, the mandatory condition sin qua non under the provisions of Section 151 of the Act was not satisfied and the notice issued by the AO is liable to be held as an invalid notice. It is pertinent to mention here that during the hearing before us, the department was afforded with an opportunity to verify all the documents, copies of which are submitted by the ld. AR to substantiate the fact that the approval of Pr.CIT was after the issuance of notice u/s.148 of the Act, from the assessment record and also directed to produce such assessment records before the bench for perusal of the same. In compliance of such directions, assessment records were produced in the court during the proceedings of hearing, but the revenue was unable to brought on the record anything contrary to the contention of the assessee to prove that the approval by Ld PCIT was accorded prior to the issuance of notice u/s.148 of the Act, which was necessary according to the mandate of provisions of Section 151 of the Act.
In the backdrop of such observations, respectfully following the binding observations of the Hon’ble High Court of Mumbai in the decisions referred to (supra), we are of the considered view that since the notice 19 issued u/s.148 of the Act was before the approval on the reason to believe by the authority concerned u/s.151 of the Act, the same is illegal and in dis-obeyance of mandate of law, therefore, the assessment framed on the foundation of such illegal notice is also invalid and cannot be sustained. We, therefore, quash the assessment framed u/s.144 r.w.s.147 of the Act for the assessment year 2012-2013 dated 30.12.2019 and set aside the order of the ld. CIT(A) deciding the issue arose out of the impugned invalid assessment order.
Before parting with, on the other contentions of the assessee we observe as under:
A. Regarding the recital of “reasons to believe” recorded u/s.148 of the Act which was not according to the statement of Shri Suresh Agrawal recorded during the course of search and seizure wherein it was admitted by him that the transaction of accommodation entries to various beneficiaries were effected through certain companies and the assessee company was one of such facilitator companies, whereas while recording the reasons u/s.148, the A.O has narrated that the assessee company is one of the beneficiaries company who has taken accommodation entries in the form of share capital and unsecured loans. Such recording of reasons contrary to the primary basis of reopening i.e. the statement of Shri Suresh Agrawal which was the foundation for reopening of the assessment in the assessee’s case is not acceptable, the reopening based on false allegation making it a reason to believe that the income 20 was escaped has no legal standing, we therefore, are of the opinion that recording of reason by placing on record misleading facts itself makes the initiation of proceedings u/s.148 invalid and void.
B. With regard to assessee’s contention that the assessee was not at any default or there was no failure on the part of the assessee to disclose truly and fully all material facts required for the assessment, therefore, the assessee’s case which was reopened beyond a period of four years invoking the provisions of “1st Proviso” to Section 147 was devoid of merits. On this aspect, since during the search and seizure proceedings certain fresh information in the form of statement of Shei Suresh Agarwal was come to the notice of the A.O which was not before him while framing the assessment u/s.143(3), therefore, such contention of the assessee cannot be concurred with and initiation of proceedings u/s.148 on this argument cannot be held as invalid. Similar is our view with respect to assesee’s contention that there was a change of opinion of the Ld AO.
Since, we have decided the legal contentions raised by the assessee thereby quashing the assessment framed u/s.144 r.w.s.147 of the Act, without going into the merits of the case, in terms of our observations herein above, therefore, we refrain ourselves to deal with any other ground raised by the assessee.
21 22. In the result, appeal of the assessee is allowed.
Order pronounced in the court on 31/07/2023. (RAVISH SOOD) (ARUN KHODPIA) "या"यक सद"य / JUDICIAL MEMBER लेखा सद"य / ACCOUNTANT MEMBER रायपुर/Raipur; "दनांक Dated 31/07/2023 Prakash Kumar Mishra, Sr.P.S(on tour)/SB