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Facts
The assessee preferred appeals against the orders of the CIT(A) upholding additions made by the Assessing Officer (AO) on the basis of reassessment proceedings initiated u/s 147/143(3). The assessee contended that the reasons for reopening were mechanical, based on borrowed satisfaction from the Investigation Wing, and lacked tangible material.
Held
The Tribunal held that the reasons recorded by the AO for reopening the assessment were mechanical and based on borrowed satisfaction from the Investigation Wing, without any independent application of mind. The statement relied upon by the AO was also retracted by the witness before the reasons were recorded.
Key Issues
Whether the reassessment proceedings initiated u/s 147 were valid when the reasons recorded were mechanical, based on borrowed satisfaction, and lacked tangible material, especially when the supporting statement was retracted.
Sections Cited
147, 143(3), 68, 148, 151, 132
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES: F : NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI KRINWANT SAHAY
ORDER PER ANUBHAV SHARMA, JM: These are appeals preferred by the assessee against the orders dated 22.07.2019, 22.07.2019 and 15.11.2018 of the Commissioner of Income-tax (Appeals)-31, New Delhi (hereinafter referred to as the ld. First Appellate Authority or ‘the Ld. FAA’ for short) in Appeals No.104/17-18/154/14-15, 103/17-18/68/14-15 and 10169/160/CIT(A)-7/Del/2017-18 arising out of the appeals before it against the orders dated 08.03.2013, 20.01.2013 and 24.11.2017, respectively, passed u/s 147/143(3) of the Income Tax Act, 1961 ITAs No.7968 & 7969/Del/2019 (hereinafter referred as ‘the Act’) by the ITO, Ward 15(1)/Ward 20(3), New Delhi (hereinafter referred to as the Ld. AO), respectively.
At the time of hearing, the ld. AR has primarily argued that grounds No.2 and 3 in which also covers the similar grounds raised
in the other two appeals. As for convenience, the grounds No.1 to 3 in the appeal of the assessee for AY 2005-06 are reproduced below:- “1. That the Hon’ble Commissioner of Income Tax (Appeals) has erred in law as much as on the facts of the case by upholding the addition of Rs.55,00,000/- received by the appellant company (as Share Application Money) from various companies without giving due cognizance to the various documents filed before him to discharge the onus cast upon it u/sec. 68 of the Act.
2. That the Hon’ble Commissioner of Income Tax (Appeals) have failed to appreciate the fact that the reasons that have recorded by the learned Assessing officer are factually incorrect and have been recorded without any independent application of mind and that the approval have also been given by the Additional CIT Range -15, New Delhi in a mechanical manner.
3. That the Hon’ble Commissioner of income Tax (Appeals) have further failed to appreciate the fact that the learned Assessing Officer reopened the case of the appellant on the basis of the statement of Sh. Aseem Kumar Gupta recorded on 23.11.2011 which he had already retracted on 25.12.2011 and thus, on the date of recording the reasons he had no tangible material to reopen the assessment of the appellant.”
Primarily, the contention of the ld. counsel is that the notice u/s 148 of the Act was issued on the basis of the reasons which were not recorded in accordance with the law, were mechanical and even the approval upon the same was mechanical. Though ld. DR has vehemently defended the issue by submitting that reasons are based on independent examination of information ITAs No.7968 & 7969/Del/2019 and not just the report of investigation wing. What we find is that at page Nos.334 to 336 the copy of reasons recorded u/s 147 is provided. The same is in fact the extract of the reasons submitted for obtaining approval of the competent authority u/s 151 of the Act. After going through the same and the reasons recorded in the two other years, we find that the different AOs have written and narrated the reasons verbatim the same. It is very much apparent from the reasons that it is merely a narration of the content of information received from the Investigation Wing. The reasons mentioned about escapement of income of Rs.45 lakhs on the basis of accommodation entries. However, what was the nature of accommodation entry has not been mentioned. Thus, there appears to be an absence of live link. The ld. AR has sufficiently established that in the reasons recorded, reference of receipt of amount of Rs.15 lakhs on 14.12.2004 and Rs.5 lakhs on 12.01.2005 were mentioned which actually were not received by the assessee. The ld. AR has established on the basis of the decision in the case of Raghvi Finance Ltd. vs. ITO, for AY 2005-06 that by order dated 27.09.2019, a verbatim written reasons were considered in the case of that assessee Raghvi Finance Ltd. and the Tribunal had found the reasons not recorded in accordance with the law. In this context, para 6.7 of the decision dated 27.09.2019 (supra) is reproduced:- “6.7 In our considered view, the Ld AR has correctly argued that the reasons in present case are based on borrowed satisfaction of CIT (Central)/income tax investigation wing which is loosely referred to as "Aseem Gupta search operation u/s 132 of the Act". Here it is important to highlight the striking features of the reasons recorded case which show that 3 ITAs No.7968 & 7969/Del/2019 the reasons are based on borrowed satisfaction only: firstly reasons start with some search operation conducted on one Shri Aseem Gupta on 26.03.2010. What are the important findings of said search operations qua the assessee's subject transaction herein namely: i)existence of statement, if any, recorded of Shri Aseem Gupta during said search operation u/s 132 of the Act; ii) whether the said statement (if any) mentioned and correlated the assessee's impugned transaction; iii) existence of incriminating material (if any) unearthed from said search operation u/s 132 of the Act; iv) correlation of the said incriminating material to assessee's subject transaction; v) inquiry, if any, made by the AO on the subject matter with respect to the information received by the AO from another wing prior to the reopening of case u/s 148 of the Act; vi) any specific and particular tangible material to form valid belief to implicate the assessee's transaction as accommodation entry; and vii) live nexus between the search on Shri Aseem Gupta and the inference to hold the assessee's transaction as accommodation entry are left to guess work and nothing is divulged from the reasons recorded on the above said aspects which make the reasons- recording exercise as invalid on well-settled parameters of section 148 of the Act. Second aspect which is notable in the reasons recorded is that there is no intelligible and rational connection in the reasons recorded and a mere conclusion is drawn from un-narrated information which does not fulfil the legal requirement u/s 148 of the Act. What we notice is that the reasons recorded mention conclusions drawn by the CIT- Central/investigation wing only which is taken as good enough to draw reasons recorded u/s 148 of the Act. We are fully conscious of the fact that the investigation wing of the Income Tax department is very important organ and arm collecting lot of significant information/s under the Act. However, the requirement of recording the reasons u/s 148 of the Act is vested in the AO only and nobody else. In the present case, the AO should have given relevant details in the reasons recorded vis a vis the crucial aspects of information shared by the CIT Central/ investigation wing (if any) which in his own independent opinion led him to formulate the belief for assuming jurisdiction for re-assessment and sans which we cannot approve the present reasons as valid and correct.”
Further, the ld. AR has submitted that the statement of one Shri Aseem Gupta was relied and, in fact, the statement of Aseem Gupta was retracted well before the issuance of notice. In this context, the ld. DR has filed a report from the AO wherein the AO has submitted that there was no such retraction and even if there was such retraction that was delayed. However, what we find is ITAs No.7968 & 7969/Del/2019 that at page 83 of the paper book, there is a copy of submission made by Shri Aseem Gupta dated 25.11.2011 to ACIT, Central Circle-9, New Delhi, wherein he has mentioned that the statement dated 23.11.2011 was made by him under influence and citing reasons he has withdrawn the statement. Now, at the time of recording of the reasons, this statement of Aseem Gupta was very much part of the record of the Department, but, seems to have been not considered. The ld. AR has supplied before us a decision in the case of M/s Sungrow Impex Private Ltd. vs. ITO, for AY 2010-11 wherein, on the basis of similar set of information arising out of the statement of Aseem Kumar Gupta, the Bench had benefitted the assessee M/s Sungrow Impex Pvt. Ltd., observing that this statement was retracted by letter dated 25.12.2011 and without making any reference of the retracted statement the reasons were recorded. The relevant finding of the coordinate Bench in the case of M/s Sungrow Impex Private Ltd. (supra) in para 6.1 are reproduced below:- “6.1. …….The CIT, Central-2 has provided information to the A.O. with respect to escapement of income of Rs.50 lacs only vide his letter Dated 15.03.2012. Prior to that Shri Aseem Kumar Gupta has already retracted from his statement and A.O. has recorded the reasons for reopening of the assessment on 17.03.2017. Therefore, there is a non-consideration of material fact by the A.O. while recording the reasons for reopening of assessment because the A.O. did not refer to the retraction statement of Shri Aseem Kumar Gupta in the reasons. Therefore, statement recorded on oath of Shri Aseem Kumar Gupta would have no evidentiary value against the assessee because he himself has retracted from his statement recorded on oath. Therefore, on the day of initiation of reassessment proceedings by recording reasons on 17.03.2017 the A.O. was not having any such statement of Shri Aseem Kumar Gupta available with him so as to believe that he controlled various companies to provide accommodation entries to the assessee and others. Thus, there is no tangible material available with the A.O. on the date of recording of the reasons for reopening of the 5 ITAs No.7968 & 7969/Del/2019 assessment and whatever reasons were recorded are found to be wrong, incorrect and non-existing. Thus, there is a total non-application of mind on the part of the A.O. while recording the reasons for reopening of the assessment. …..”
As a consequence of the aforesaid discussion, we are of the considered 5. view that the assessee has sufficiently established that the reasons were recorded in a mechanical manner by merely relying the information of the Investigation Wing and there was no sincere attempt on the part of the AO to verify any fact of its own leading to the conclusion that the satisfaction was merely a borrowed satisfaction. We are inclined to allow grounds No.2 and 3 of the assessee. The appeals of the assessee are allowed. The impugned orders are quashed.