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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ : NEW DELHI
Before: SH. M. BALAGANESH & SH.ANUBHAV SHARMA
The appeal is preferred by the Assessee against the order dated 30.12.2018 of Commissioner of Income Tax (Appeals)-23, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’). These appeals arise from the assessment orders passed by Assessing officer, ACIT, Central Circle-04, New Delhi.
The brief facts are the assessee had filed return on 27.09.2010. It is engaged in the business of builder and developer. The Assessing officer received information from ADIT (Investigation Wing-2(1) Kolkata that a fund 1607/Del/2019 of Rs. 12.5 lakhs was received by the assessee in its bank account during the year under consideration. He observed that in the return assessee has shown nil income and no entry of such amount appears in its P&L a/c. In view of this notice u/s 148 dated 31.03.2017 was issued requiring assessee to file its return of income. Assessee complied the directions and filed return vide letter dated 10.08.2017 accordingly, notice u/s 143(2) dated 18.08.2017 and u/s 141(1) along with questionnaire was issued to the assessee. The Ld. AO has further observed that a search and seizure operation was conducted in MAPSKO Group on 29.12.2015 and appraisal report dated 08.09.2016 along with seized material was received by him on 14.07.2017. Ld. AO considered the appraisal report in which it was found that 11 parties has subscribed share capital of Rs. 62,50,000/- and share premium in the assessee company. The AO examined the net worth and total income of these parties. Issued notices and called for information u/s 133(6) and u/s 131 of the Act. Physical inspection was also got conducted from the Inspector and assessee was asked to explain the genuineness of the transactions and subsequently the Ld. AO made additions of Rs. 62,50,000/- on the basis of following relevant findings :-
“6. It is pertinent to mention here that as per the information received from ADIT(Inv), Unit-2(1), Kolkata, the funds was transferred to the assessee company after rotation of the same through the bank accounts of the different companies. The company i.e. JMD Sounds from which the funds of Rs. 12.50 lakh were credited to the bank account of the assessee company in the year under consideration and on perusal of the assessee company for the A.Y. under consideration, it was found that the assessee has shown nil income in its return and there was no entry in the P&L account. Hence, it is clear that the assessee company has received Rs. 12,50,000/- as credit in its account but did not offer the same for tax and therefore failed to disclose fully and truly all material facts necessary for its assessment for A.Y. 2010-11. Further, it is reiterated that as mentioned above the assessee company could not prove the identity of the said share applicant, genuineness of the transaction and creditworthiness of the share applicants. Further, 1607/Del/2019 information was also called u/s 133(6) and summons u/s 131 to the said share applicant but no reply was received in this regard.
The reply of the assessee is considered and not found satisfactory. The assessee has nothing to produce and offer to substantiate the genuineness of the parties from whom investments in the form of share capital & share premium have been received during the year under consideration. The assessee has failed to discharge the primary onus of proving identity, capacity of making the investment and genuineness of the transactions within the meaning of section 68 of the Income Tax Act, 1961.
From the above facts narrated in foregoing paras, the following facts emerge:- a) That the investors/share-holders who made such a huge investment are unknown entities to the directors/key-persons of the assessee company as it could not furnish even a single document duly attested/confirmed by the investors as required vide various notices u/s 142(1) of the Act. a) b) That each share of face value of Rs.10/- was purchased by the investors/share- holders at a premium of Rs.90/-. It is highly impractical that an unknown person shall buy shares at huge premium of an unknown newly incorporated and unlisted company which is not engaged in any progressive business. Thus there is no justification of premium paid/charged and it goes to corroborate the belief that the transactions are not genuine. From the above facts, it is clearly established that the alleged share holders who have made investments in the assessee company are dummy entities/persons and have merely provided accommodation entries.
In view of the above facts discussed above, it is held that the fresh share capital/share premium of Rs.62,50,000/- credited in the account books of the assessee company in the name of afore-said investors is unexplained credits u/s 68 of the Income Tax Act, 1961 and the same is added to the total income of the assessee. Penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 are initiated separately as the assessee has furnished inaccurate particulars of income resulting in concealment of income. [Addition of Rs.62,50,000/-]”
1607/Del/2019
As assessee went in appeal, the Ld. CIT(A) has taken up the appeal of assessee along with 58 other appeals of parties falling in Talwar Group and Duggal Group, upon which search and seizure operations was conducted on 29.12.2015. The appeal of assessee is mentioned at serial no. 16 as part of Talwar Group and in para no. 85 to 92, the Ld. CIT(A) dealt with the grounds of assessee and dismissed the appeal for which assessee is in appeal before this Tribunal and has raised following grounds :-
“Jurisdictional ground That impugned reopening made u/s 147/148 of 1961 Act (old 1. law prior to 01.04.2021) vide impugned notice u/s 148 dated 31.03.2017 for subject AY 2010-2011 in turn based on impugned reasons recorded u/s 148(2) is without authority of law and is contrary to mandate of 1961 Act and do not meet relevant jurisdictional conditions stipulated under 1961 Act; so impugned asst order passed u/s 147/143(3) dated 26.12.2017 and Id cit-a order dated 30.12.2018 are invalid and unlawful ; That That impugned reopening made u/s 147/148 of 1961 Act 1.1 (old law prior to 01.04.2021) vide impugned notice u/s 148 dated 31.03.2017 for subject AY 2010-2011 as stated in para 4 of impugned asst order has unlawfully included some “unconfronted” so called appraisal report dated 08.09.2016 in turn founded on some (purported) search action u/s 132 on 29.12.2015 in violation of mandate of 1961 act; so impugned asst order passed u/s 147/143(3) dated 26.12.2017 and Id cit-a order dated 30.12.2018 are invalid and unlawful That That impugned reopening made u/s 147/148 of 1961 Act 1.2 (old law prior to 01.04.2021) vide impugned notice u/s 148 dated 31.03.2017 for subject AY 2010-2011 as stated in para 4 of impugned asst order has unlawfully expanded scope of reopening by including those aspects which were not part of reasons to believe and are in violation of explanation 3 to sec 147 of 1961 act; On merits That Id CIT-A erred in sustaining impugned addition of Rs 2. 62,50,000 u/s 68 on a/c of alleged unexplained cash credit in form of share capital /share premium is made in unlawful manner based on 1607/Del/2019 incorrect invocation of provision of section 68 to undisputed facts of present case and so said addition may please be deleted in toto; That Id CIT-A erred in sustaining impugned addition of Rs 2.1 125,000 u/s 69C on a/c of alleged unexplained expenses is made in unlawful manner based on incorrect invocation of provision of section 69C to undisputed facts of present case and so said addition may please be deleted in toto; Violation of principle of natural justice /impugned assessment made in illegal manner That impugned asst, as sustained by Id cit-a is totally illegal 3. and unlawful as it is made in serious and total violation of principle of natural justice because at no stage assessee is provided with so called /purported relied upon material namely relevant appraisal report etc based on which instant reopening is made and further expansion is made in scope of reopening and no valid Show cause notice (SCN) is issued, which invalidates the instant reopening made u/s 147/148 of 1961 Act.”
Heard and perused the record. Ld. AR primarily addressed that jurisdictional grounds broadly covered in ground no. 1 with sub ground 1.1 to 1.6. In written submission, it was submitted by Ld. AR as below ; “2. Central and principal issue which arises in this case is on assumption of jurisdiction u/s 147/148 based on impugned reasons recorded u/s 148(2) and further on jurisdictional validity of expansion of reopening made u/s 147/148 of 1961 Act based on so called unconfronted appraised report recd during course of impugned asst proceedings ? 3.1 It is settled law that validity of reopening u/s 148 is a jurisdictional issue and goes to the root of the matter and requires to decided at the outset itself; reference is made to three judge bench decision of hon’ble apex court in case of Narayana cheety vs ITO 35 ITR 388 THAT reopening based on invalid notice u/s 148 is void and illegal and issue of valid notice u/s 148 is not a mere procedural requirement; SC 4 Jugde bench decision in case of Raza Textiles vs ITO 1973 87 ITR 539 SC; SC 4 Judge bench decision in Karan Singh vs Chaman singh Paswan AIR 1954 SC 340 ; Hon'ble Madras high court in case of Charu K Bagadia vs ACIT (27.06.2022) 448 ITR 563/327 CTR 419: Writ Appeal No. 2493 of 2021 ("At the outset, be it noted, it is settled law that "a jurisdiction can neither be waived nor created even by consent and 5 1607/Del/2019 even by submitting to jurisdiction, an Assessee cannot confer upon any jurisdictional authority, something which he lacked inherently". The said ratio squarely applies to the case on hand." & Pertinently, it is to be pointed out at this stage that "if an order is passed by a judicial or quasi-judicial authority having no jurisdiction, it is an obligation of Appellate Court to rectify the error and set aside the order passed by the authority or forum having no jurisdiction" [Refer: State of Gujarat v. Rajesh Kumar Chimanlal Barot and another, AIR 1996 SC 2664] 3.2 On validity of present reopening action u/s 147/148 based on impugned reasons recorded: It is glaring that same is totally without any application of mind and is merely based on borrowed satisfaction and do not fulfill requisite jurisdictional threshold of valid ‘reasons to believe” u/s 148(2) : as is evident from following shining and patent deficiencies in present reasons recorded : firstly there is total lack of live nexus and rational connection (refer SC lakmnai mewal dass 103 ITR 437) in reasons recorded as there is no reference of jmd sounds in list of companies branded as jama kharchi companies ; secondly there is no exact date and relevant banking details mentioned in reasons recorded qua subject transaction and thirdly merely because said amount is not credited to P&L account by assessee same is treated as income escaping assessment which is totally incorrect as same is evident from admitted /undisputed fact that same is in nature share capital/share premium in hands of assessee herein ; fourthly reasons are not based on any valid /actionable “tangible” material sans which reopening u/s 147/148 can not be made ; fifthly reasons are merely in nature of conjecture and surmises and suspect which can not satisfy test of reasons to believe u/s 147/148 of 1961 Act; sixthly they are merely based on some unconfronted investigation wing information , which has not been independently and adequately examined and analysed at end of Ld AO at stage of recording of reasons u/s 148(2) thus a case of borrowed satisfaction ; so instant reasons recorded fails to pass muster of law and thus impugned reopening action can not be countenanced ; (reliance is placed on:On issue of invalid reopening if made on basis of borrowed satisfaction as done in instant case; refer hon ’ble delhi high court latest ruling in case of Blackstone capital reported at 452 ITR 111. Same is proposition laid down by delhi high Court in case of Munjal Showa Ltd vs DCIT382 ITR 555 and hon’ble Gujarat high court rulings in cases of: Anilaben Rohitbhai Modi vs ITO in SCA 3526/2022 order dated 23.06.2023 (para 21 & 22) 456 ITR 607and on issue of lack of live nexus etc delhi high 6 1607/Del/2019 court latest ruling in case of CIT vs Spirit Global Construction Pvt Ltd 2023 SCC OnLine Del 4188ITA 191/2018 Decided on July 18, 2023 is relied) and recent hon’ble Bombay high court in case of B.C. bhandari auto lines pvt ltd vs A CIT 292 Taxman 195/ 331 CTR 240 and hon’ble Bombay high court recent decision in case of Gandhibag Sahkari Babnk ltd vs DCIT 25 SEP. 2023 WP 3177/2022 and hon ’ble Bombay high court in case of PCIT vs Shodiman investment pvt ltd 422 ITR 337) 3.3 Apropos expansion of reopening made in instant case as evident from para 4 of impugned asst order which is founded on unconfronted appraisal report (which in internal/confidential report only) and so same can not be utlilised against assessee sans same being confronted to assesssee (refer hon’ble rajastha high court in case of Micro Marbles 'Pvt Ltd vs ITO 457 ITR 569 and hon ’ble Bombay high Court in Anurag Gupta case 454 ITR 326 and further same has not been lawfully inducted vide separate/mandatory corresponding notice u/s 148 (refer delhi high court in Ranbaxy laboratories case 336 ITR 136 and Mumbai G bench of ITAT in case of Juliet industries ltd vs ITO (ITA 5452/Mum/2016 order dated 04.04.2018 and delhi C bench IT AT in case of INS Finance investment pvt ltd vs. ITO (ITA 9266/DEL/2019 order dated 26.10.2020) and further same is in nature of roving and fishing inquiries only as there is no income escaping asst element/ingredient in said appraisal report information; and further same is stale information already available prior to reopening action and do not meet criteria of tangible material, so expansion of reopening is totally illegal and unlawful;”
4.1 Ld. DR however defended the alleged illegality in the jurisdictional exercise by Ld. AO submitting that in the reopening, the Ld. AO has specifically referred to the materials which form the information and that certain inquiries were independently made and based upon the same assessment was completed. It was submitted it is not a case of borrowed satisfaction.
Appreciating the matter on record, it comes up that before Ld. CIT(A) the assessee in Form 35 had raised grounds and it will be appropriate to reproduced same as follows ; 1607/Del/2019 “85. As per Form no. 35, the grounds of appeal
raised by the appellant are as under :
1. The Learned AO has erred in law and facts by terming the capital raised as accommodation entries and has not applied his mind and has not made honest effort to verify the conditions laid u/s section 68. The order has been passed merely based on information produced by investigation department.
2. Without prejudice the addition is bad in law and on facts particularly in view of the fact that the alleged sum is nothing but utilization of the impugned addition u/s 153A made by the same Ld. Assessing Officer vide order dated 30.02.2017 u/s 68 of the Income Tax Act in the hands of Mr. Rajnish Talwar, Director of the company in his individual capacity. Hence, depriving the assessee of the telescoping benefit.
3. The Ld. Assessing Officer has erred in law and facts while adding back on accounts of disallowances which is without any basis or evidence by taking adhoc percentage of commission.
4. The assessment has been completed in undue haste and without giving due opportunity to assessee to submit relevant facts and cross examination of evidence used against the assessee.
5. The order passed by the Learned Assessing Officer is bad in law and facts of the case.
6. The appellant craves for leave to later, amend, modify, vary, delete and/or add to the aforesaid grounds of appeal and prays for appropriate relief on the basis of the above said ground and/ or such other relief as may be allowed to be urged by leave.”
6. Then Ld. CIT(A) discusses the grounds on merits as well as the jurisdictional grounds. Ld. CIT(A) seems to have dealt with certain additional grounds also and it will be relevant to reproduce para 86.15 to 86.24 as below ; “86.15 The issue which is sought to be brought under this appeal (by this additional ground) is not part of the impugned order. 86.16 Therefore, the said power of CIT(A) is only in- realm of exception and therefore, very heavy onus is upon the appellant to show (cumulatively) that beyond any show of doubt, he/she/it is not at fault (at all), i)
1607/Del/2019 There exist really exceptional circumstances where ii) exercise of this power is necessary, and No prejudice shall be cast upon the revenue if such claim iii) is entertained. 86.17 From the above, it is clear that first of all the assessee has to demonstrate that the facts on the basis of which the issue of law can be raised, are already before the Appellate Authority. 86.18 The appellant has no where demonstrated that the facts which are necessary to adjudicate the claim are already before, the CIT(A). In fact, before the undersigned, the appellant has not even produced a copy of reasons recorded. 86.19 Even in a situation where the appellant is able to demonstrate that the facts which are necessary to adjudicate the claim are already before, CIT(A), it is not mandatory to accept such claim. The Appellate Authority is obliged to exercise this power of entertaining of new grounds in judicious manner keeping conditions mentioned in para 67.16, above. 86.20 The first requirement for exercise of this power, judicially is that assessee is obliged to demonstrate that it was stopped by factors beyond its control to make such claim at the earlier occasion and after that the factors continued to stop it from making such claim till date the claim was made by the appellant by way of the application under consideration. 86.21 In the present case appellant has not demonstrated that it was stopped by factors beyond its control to make such i) claim at the earlier occasion and after that the factors continued to stop it from making ii) such claim till date the claim was-made by the appellant by way of the application under consideration. 86.22 The appellant has also not demonstrated that there exist really exceptional circumstances where exercise of this power is necessary. 86.23 If these grounds are allowed to be raised at this stage, a prejudice would be cast against the revenue because the revenue 1607/Del/2019 is now precluded from taking action u/s 147 because of time limitation. 86.24 In view of the above discussion, the undersigned is satisfied that it is not a fit case to exercise his discretion to admit additional ground raised by the appellant.”
7. Now when the grounds raised before us and the arguments canvassed are considered very apparently the assessee has not raised any specific ground by questioning the order of Ld. CIT(A) in not entertaining the additional ground regarding questioning of the reopening however the additional grounds raised here before Tribunal are all questions of law dealing with exercise of jurisdiction by Ld. AO. So we can deal with these first by understanding if Ld. CIT(A) was justified to not entertain same. 7.1 In this context it appears that a letter dated 05.10.2017 addressed to the AO was produced before Ld. CIT(A) raising the jurisdictional aspects of the reopening of assessment u/s 148 and for which Ld. CIT(A) in para 86.15 to 86.24 has made the discussion and refused the admit additional grounds.
8. As we go through the same it makes us realise that Ld. CIT(A) has fallen in error in not admitting the additional grounds which are pure questions of law. Even if Ld. CIT(A) believed that assessee should have raised the question of jurisdiction before Ld. AO that does not create an obstacle on the rights of assessee to raise the issues of jurisdiction before Ld. First Appellate Authority. No question of facts and circumstances were necessary being established as such, for admitting additional grounds questioning the exercise of jurisdiction. Ld. CIT(A) has fallen in error in failing to admit the additional grounds on the basis that the assessee has failed to demonstrate the facts on the basis of which issue of law can be raised because the pure questions of law questioning the exercise of jurisdiction go to the root of the impugned assessment order and where the first appellate Authority has co-terminus powers of Assessing officer in that case on such observations of lack of factual assistance, Ld. CIT(A)