ITAT, DELHI
M/S BANKE BIHARI PROPERTIES PVT. LTD. Vs. ITO
22-04-2016
ITA
No. 5128/Del/2015
The
Assessee has filed the Appeal against the Order dated 26.5.2015 of the Ld. CIT(A)-2,
New Delhi pertaining to assessment year 2006-07 and raised the following grounds:-
1.
That having regard to fact and circumstances of the case, Ld. CIT (A) has erred
in law and on facts by not accepting the assessee's submission that, in any case,
and in any view of matter, the notice u/s 147 is barred by limitation and the notice
I order are based on incorrect facts in violation of principal of natural justice.
2.
That having regard to facts and circumstances of the case, Ld. CIT (A) has erred
in law and on facts in confirming the action of Ld. AO by treating the amount of
Rs 3,50,00,000/- as unexplained credit, which is purely based upon the presumption
and incorrect facts.
3.
That having regard to facts and circumstances of the case, Ld. CIT (A) has erred
in law and on facts by not accepting the assessee submission that amount is received
through proper banking channel, and even loan creditors never denied granting the
loans to the assessee.
4.
That having regard to facts and circumstances of the case, Ld. CIT (A) has erred
in law and on facts by not accepting the assessee submission that he should not
be punished merely on the statement of third party where opportunity of cross examine
to Shri Tarun Goyal (whose statement was taken by the investigation wing) and other
directors of the other companies had not been provided during the course of assessment
proceeding.
5.
That having regard to facts and circumstances of the case, Ld. CIT (A) has erred
in law and on facts in confirming the action of Ld. AO in treating Rs. 3,50,00,000/-
as unexplained credit, because of the assessee failed to present the loan creditors
before the Ld. A.O or failed to produce any documents of their identity / credit
worthiness which is beyond his control, since Mr. Tarun Goyal and others are not
co- operating with the assessee. This is bad in law and not sustainable on various
legal and factual grounds.
6.
That having regard to fact and circumstances of the case, Ld. CIT (A) has erred
in law and on facts by not accepting the assessee's request that Ld. A.O should
obtain the details by any means / power, since Mr. Tarun Goyal and others or not
providing the desired documents / details of the assessee, after so many request.
7.
That having regard to facts and circumstances of the case, Ld. CIT (A) has erred
in law and on facts in confirming the action of Ld. AO, who have failed to apply
his mind while passing the assessment order. He failed to gather the information
of loan creditors, which is available with investigation wing.
8.
That in any case and in any view of the matter, action of Ld. CIT (A) in confirming
of action of Ld. AO in making addition / disallowance is bad in law and against
the facts and circumstances of the case and the same is not sustainable on various
legal and factual grounds.
9.
That having regard to facts and circumstances of the case, Ld. CIT (A) has erred
in law and on facts in not reversing the action of Ld. AO in charging interest u/s
234 A, 234 B, and 234 D of Income Tax Act, 1961.
10.
That having regard to facts and circumstances of the case, Ld. CIT (A) has erred
in law and on facts by stating that ( Para- 4.2.14 of the order) "the Appellant
is a Private Limited Company, where the money have been received through Private
Placement and not through Public Issue. So being a Private Limited Company, the
contributors must have been personally known to the Appellant." This is factually
incorrect, since those are the Loan Creditors of the Appellant company, and not
the Shareholders. Again, the amount was not received by Appellant Company through
Private Placement for allotment of shares , but it was received through banking
channels from the Loan Creditors of the Appellant Company.
11.
That having regard to the facts & circumstances of the case, the Ld. CIT(A)
has not called for the remand report. Nowhere in the assessment order, the Ld. A.O
has stated that these loans were not received by the Company. The receipt of the
Loans were not objected. The Loans were actually received by the assessee company.
The addresses , PAN No., Names, were duly provided, but the Ld. AO ignored them
and relied only on the information of third party, i.e Investigating Department
of 1. Tax without going with the details of the case. That the Investigating Department
must have provided the names, addresses, and PAN No. of the Loan creditors, who
could have summoned. That the Ld. AO must have the details of the Bank Accounts
of the Loan Creditors. They could have summoned the required information from Banks
of the Loan Creditors. That the Ld. AO fails to apply his mind and also Ld. CIT(A)
failed gather information from third parties, in spite of the fact that all the
resources of the information was available with the Ld. AO & Ld. CIT(A).
12.
That the Appellant craves the leave to add, modify, amend or delete any of the grounds
of appeal at the time of hearing and all the above grounds are without prejudice
to each other.”
2.
At the time of hearing, Ld. Authorised Representative of the Assessee filed the
following concise/revised/additional legal grounds of appeal.
“1(a)
On the facts and circumstances of the case and in law, the notice u/s 148 issued
in this case is bad-in-law, without jurisdiction and barred by limitation and accordingly,
the notice u/s 148 issued and also thy assessment order passed on the foundation
of such notice are liable to be quashed. On the facts and circumstances of the case
and in law, the Commissioner of Income Tax (A) erred in not quashing the notice
u/s 148 and the assessment order passed by the assessing officer.
b)
On the facts and circumstances of the case and in law, the notice u/s 148 issued
in this case is contrary to the provisions of section 147 to section 151 of Income
Tax Act, 1961 and the Commissioner of Income Tax (Appeal) has erred in not holding
so.
2.
On the facts and circumstances of the case and in law, the Commissioner of Income
Tax (Appeal) erred in confirming the addition of Rs.3,50,00,000/- made by the assessing
officer on account of alleged unexplained credits.
3.
On the facts and circumstances of the case and in law, the alleged reasons given
by the A.O. for making the addition of Rs.3,50,00,000/- on account of alleged unexplained
credits and the reasons given by CIT(A) for confirming the said additions are erroneous
and not sustainable both on facts and in law and accordingly the addition of Rs.3,50,00,000/-
on account of alleged unexplained credits is liable to be deleted. The appellant
craves leave to add one or more ground of appeal or to alter / modify the existing
ground before or at the time of hearing of appeal.”
3.
After filing the above grounds, Ld. Counsel of the assessee requested that before
proceeding on merit in the case of the assessee, first the additional legal grounds
raised by the assessee may be considered and decided, because the legal grounds
goes to the root of the matter and very much essential, hence he requested that
the additional grounds may be admitted in the interest of justice.
4.
Ld. DR did not raise any serious objection on the admission of additional grounds.
5.
We have heard both parties on the admission of additional grounds, as aforesaid,
we are of the view that in the interest of justice, the additional grounds raised
by the assessee mentioned in para no. 2 at page no. 5 of this order are purely legal
and do not require fresh facts which is to be investigated and go to the root of
the matter. In the interest of justice, we admit the additional ground raised by
the assessee, in view of the decision of the Hon’ble Supreme Court of India in the
case of NTPC Limited 229 ITR 383 and proceed to decide the additional grounds first.
6.
The brief facts of the case are that the proceedings u/s. 147/148 were initiated
in this case after recording the reasons on the basis of the information received
from Director of Income Tax (Investigation), New Delhi, that certain persons including
the assessee company were beneficiaries of taking accommodation entries received
from the private limited companies floated by Sh. Tarun Goyal during the period
relevant to AY 2006-07. The findings of the “Investigation Wing” of the Department,
were brought to the knowledge of all the Assessing Officers alongwith the data collected
in the course of investigation. The modus operandi adopted by such beneficiaries
of the services of accommodation entry providers was detected and the assessee was
found to be the accommodation entry from such entry operator controlled by Sh. Tarun
Goyal during the FY 2005-06 relevant to AY 2006-07 as per the following specific
details of transaction:-
S.No.
Beneficiary Company Name of the entry operator Amount involved. (Rs.)
1.
Banke Bihari Properties Pvt. Bhavani Portfolio 25,00,000/- Ltd. P. Ltd.
2.
Banke Bihari Properties Pvt. Ltd. Countrywide Credit & Securities P. Ltd. 20,00,000/-
3.
Banke Bihari Properties Pvt. Ltd. Deep Sa Drilling P. Ltd. 20,00,000/-
4.
Banke Bihari Properties Pvt. Ltd. Geefcee Finance Ltd. 20,00,000/-
5.
Banke Bihari Properties Pvt. Ltd. Karol Bagh Trading Ltd. 20,00,000/-
6.
Banke Bihari Properties Pvt. Ltd. Rishabh Shoes P. Ltd. 25,00,000/-
7.
Banke Bihari Properties Pvt. Ltd. Sadguru Finman Pvt. Ltd. 20,00,000/-
8.
Banke Bihari Properties Pvt. Ltd. Tauru Finman Pvt. 15,00,000/-
9.
Banke Bihari Properties Pvt. Ltd. Tejasvi Investment Pvt. Ltd. 25,00,000/-
10.
Banke Bihari Properties Pvt. Ltd. Thar Steels Pvt. Ltd. 15,00,000/-
11.
Banke Bihari Properties Pvt. Ltd. Unique Capital Pvt. Ltd. 25,00,000/-
2,90,00,000/-
Accordingly,
notice u/s. 148 of the I.T. Act, 1961 was issued and the assessee was supposed to
file the return of income within 30 days in compliance to notice u/s. 148. In compliance
to notice u/s. 148, the AR of the assessee has filed a letter dated 22.5.2013 alongwith
a photocopy of e-filed return without any stamp/ receipt of the relevant Ward/Circle.
The declared income / loss was shown at Rs. 11,172/-. The assessee also requested
a copy of reasons vide the above letter. The reasons were provided to the assessee
vide letter dated 16.7.2013. Thereafter, the AR of the assessee filed objections
on the reasons recorded on 11.9.2013. The objections were disposed off vide order
dated 4.10.2013 and the case was fixed accordingly. Thereafter, the AO has observed
that in the absence of any supporting documents to substantiate the identity, genuineness
and creditworthiness of loan giver, the information received from the DIT(Inv.),
regarding accommodation entries of Rs. 3,50,00,000/- is corroborated with the bogus
transactions through banking channel.
Accordingly,
the AO added Rs. 3,50,00,000/- being received from entry operator and treated the
same as undisclosed income of the assessee and completed the assessment at Rs. 3,49,88,828/-
u/s. 147/143(3) of the Act vide order dated 28.2.2014.
3.
Against the Order of the AO, assessee appealed before the Ld. CIT(A), challenging
the reopening as well as the additions in dispute who vide impugned order dated
03.12.2013 has dismissed the appeal of the Assessee.
4.
Aggrieved with the aforesaid order of the Ld. CIT(A), Assessee is in Appeal before
the Tribunal for challenging the legal issue raised as well as the addition in dispute
raised in the Additional Grounds filed during the hearing which are mentioned under
para no. 2 of this order, as aforesaid.
5.
At the time of hearing, Ld. Counsel of the assessee has only argued the legal ground
that notice u/s. 148 issued in this case is contrary to the provisions of section
147 to section 151 of the Income Tax Act, 1961 by stating that action of the Assessing
Officer is illegal. First of all, he draw our attention towards Page no. 1 of the
Paper Book which is a copy of Notice dated 25.3.2013 issued u/s. 148 by the AO.
Further he draw our attention towards page no. 17 to 21 which is a copy of the forwarding
letter alongwith copy fo reasons for reopening the case u/s. 148 and stated that
no proper reasons were recorded; no nexus between the materials relied upon and
the belief formed for escapement of income; no application of mind; no proper satisfaction
was recorded before issue of notice u/s. 148; no independent conclusion that there
was escapement of income and no proper satisfaction / approval has been obtained
from the Addl. CIT; Ld. Addl. CIT has granted the approval for reopening of the
assessment in a mechanical manner and without due application of mind by writing
the word “approved”. To support his contention he submitted that the issue in dispute
is squarely covered in favour of the assessee by the ITAT decision dated 09.1.2015
in the case of G&G Pharma India Limited vs. ITO passed in ITA No. 3149/Del/2013
(AY 2003-04) in which the Judicial Member is the Author. He further stated that
the above decision of the ITAT dated 9.1.2015 has been upheld by the Hon’ble Jurisdictional
High Court in its Decision dated 08.10.2015 in ITA No. 545/2015 in the case of Pr.
CIT-4 vs. G&G Pharma India Ltd. In this behalf, he filed the copy of the order
dated 9.1.2015 of the ITAT, Delhi Bench passed in the case of G&G Pharma India
Ltd vs. ITO (Supra) and referred the page nos. 21-39 of his another Paper Book i.e.
Compilation of case laws. He further draw our attention towards the page no. 39-56,
and relied upon the ITAT decision dated 22.10.2014 in the case ITO vs. NC Cables
Ltd. He further relied upon the decision of the ITAT, Mumbai Bench in the case Amar
Lal Bajaj vs. ACIT (2013) 37 Taxmann.com 7 (Mumbai) Trib. (copy thereof at page
no. 67-71 of the Paper Book) and also referred the M.P. High Court decision in the
case of CIT vs. M/s S. Goyanka Lime and Chemicals ltd. in which the Department filed
SLP in the Hon’ble Supreme Court title CIT vs. M/s S. Goyanka Lime and Chemicals
Ltrd. (2015) 64 taxmann.com 313 (SC) wherein the Hon’ble Supreme Court has upheld
the decision of the Hon’ble High Court and dismissed the Department’s Appeal. Therefore,
he requested that by following the aforesaid precedents the reassessment proceedings
of the AO may be quashed by accepting the Appeal filed by the Assessee.
6.
On the contrary, Ld. DR relied upon the order passed by the authorities below and
draw our attention towards the page no. 17-21 of the Paper Book wherein the reasons
recorded and approval thereof was mentioned. He stated that the AO has properly
recorded the reasons for reopening and in turn Ld. Addl. CIT has granted the approval
for the same, by due application of mind. He further stated that approval granted
by the Addl. CIT is not mechanical on the contrary the Addl. CIT has fully considered
the facts of the case and after due consideration of the facts has given a direction
for reopening of the case by writing the word “approved”. Therefore, he stated that,
it cannot be said that the sanction was granted mechanically or without application
of mind.
7.
We have heard both the parties and perused the relevant records available with us,
especially the orders of the revenue authorities and the case law cited by the assessee’s
counsel on the issue in dispute. In our view, it is very much necessary to reproduce
the reasons recorded by the AO before issue of notice u/s. 148 and the approval
of the Ld. Addl. CIT, Range-2, New Delhi for reopening of assessment which reads
as under:-
“FORM
FOR RECORDING THE REASONS FOR INITIATING PROCEEDINGS U/S. 148 AND FOR OBTAINING
THE APPROVAL OF THE ADDL. COMMISSIONER OF INCOME TAX / COMMISSIONER OF INCOME TAX
1.
Name & Address of the Assessee M/s Banke Bihari Properties Pvt. Ltd. 144/2,
Ashram Mathura Road, New Delhi – 110 014
2.
PAN AACCB6652Q
3.
STATUS COMPANY
4.
RANGE / WARD WARD-2(3), NEW DELHI
5.
Assessment Year in respect of which it is proposed to issue notice u/s. 148. 2006-07.
6.
The quantum of income which has escaped assessment. Rs. 2,90,00,000/-
7.
Whether the provisions of Section 147(a), 147(b) or 147(c) are applicable or all
the Sections are applicable. Yes
8.
Whether the assessment is Yes proposed to be made for the first time. If the reply
is in affirmative please state. Whether any voluntary No return had already been
filed. If so, date of filing the said NA return.
9.
If the answer to item 8 is in negative please state The income originally assessed
….. Whether it is a case of under assessment, assessment at too low a rate, assessment
which has been made the subject of excessive relief or allowing of excessive loss
or depreciation.
10.
Whether the provisions of section 150(1) are applicable, if the reply is in
the
affirmative, the relevant NA facts may be stated against item no. 11 and it may
also be brought out that the provision of section 150(2) would not stand in the
way of initiating proceedings u/s. 147.
11.
Reasons for the belief that income has escaped assessment.
In
this case, the assessee has not filed any return of income as per the record of
this office. Thereafter, an information was received from the Investigation Wing
of the Department that the above named assessee is a beneficiary of accommodation
entries received from the private limited companies floated by Shri Tarun Goyal
during the period relevant to AY 2006- 07. In the report it has further been stated
that all the entry giving companies are operating from the office of Shri Tarun
Goyal addressed at 13/34, WEA Arya Sarns] Road, Karol 8agh, New Delhi and his earlier
office at 203- Dhaka Chambers, 2069/39, Naiwala, Karol Sa'gn, New Delhi. It has
also been stated that the directors of these companies .. are former and present
employees of Shri Tatun Goyal who were used merely for signing the documents, bank
cheques etc. I have perused the information contained in the report and the evidences
gathered. The report provides details of the modus operandi and explains how the
unaccounted money of the beneficiaries are ploughed back in its books of account
in the form of bogus share capital/capital gains, unsecured loans etc.after routing
the same through the bank account (s) of the entry operators floated by Shri Tarun
Goyal. Entry operators were identified after thorough investigation on the basis
of definitive analysis of their identity, creditworthiness and the source of the
money ultimately received by the beneficiaries, In the instant case, the assessee
is found to be the beneficiary of accommodation entry from such entry operator controlled
by Shri Tarun Goyal during the FY 2005-06 relevant to AY 2006-07 as per the following
specific details of transactions.
S.No.
Beneficiary Company Name of the entry operator Amount involved. (Rs.)
1.
Banke Bihari Properties Pvt. Ltd.
Bhavani Portfolio P. Ltd. 25,00,000/-
2.
Banke Bihari Properties Pvt. Ltd. Countrywide Credit & Securities P. Ltd. 20,00,000/-
3.
Banke Bihari Properties Pvt. Ltd. Deep Sa Drilling P. Ltd. 20,00,000/-
4.
Banke Bihari Properties Pvt. Ltd. Geefcee Finance Ltd. 20,00,000/-
5.
Banke Bihari Properties Pvt. Ltd. Karol Bagh Trading Ltd. 20,00,000/-
6.
Banke Bihari Properties Pvt. Ltd. Rishabh Shoes P. Ltd. 25,00,000/-
7.
Banke Bihari Properties Pvt. Ltd. Sadguru Finman Pvt. Ltd. 20,00,000/-
8.
Banke Bihari Properties Pvt. Ltd. Tauru Finman Pvt. 15,00,000/-
9.
Banke Bihari Properties Pvt. Ltd. Tejasvi Investment Pvt. Ltd. 25,00,000/-
10.
Banke Bihari Properties Pvt. Ltd. Thar Steels Pvt. Ltd. 15,00,000/-
11.
Banke Bihari Properties Pvt. Ltd. Unique Capital Pvt. Ltd. 25,00,000/- 2,90,00,000/-
The
asessee has received unexplained sums from the entry operators as per the above
details as per information available with the undersigned. As explained above, the
identify, creditworthiness and genuineness of transactions with the reasons found
to be entry operator cannot be established. I therefore, have reasons to believe
that on account of failure on the part of the assessee to disclose truly and fully
all material facts necessary for assessment for above assessment year, the income
chargeable to tax amounting to Rs.2,90,00,000/- has escaped assessment within the
meaning of section 147 of the Act.
Since
four years has expired from the end of the relevant assessment year, and the assessee
has not filed any return of income, the reasons recorded above for the purpose of
opening of assessment is up for kind satisfaction of the Addl CIT, Range-2, New
Delhi in terms of the provisions to section 151(2) of the IT Act, 1961.
Dated:
22.03.2013 Sd/- (PAWAN MEENA)
ITO,
WARD 2(3), NEW DELHI
12.
Whether the Addl. CIT/CIT/CBDT is satisfied on the reasons recorded by the AO that
it is a fit case for the issue of notice u/s. 148. Approved Dated: Sd/- (25.03.2013)
(P.V.
Gupta)
Addl.
CIT, Range-2, New Delhi”
8.
After going through the reasons recorded by the Assessing Officer/DCIT, Circle 2(3),
New Delhi for reopening and the approval thereof by the Ld. Addl. CIT, Range-2,
New Delhi, we are of the view that AO has not applied his mind so as to come to
an independent conclusion that he has reason to believe that income has escaped
during the year. In our view the reasons are vague and are not based on any tangible
material as well as are not acceptable in the eyes of law. The AO has mechanically
issued notice u/s. 148 of the Act, on the basis of information allegedly received
by him from the Directorate of Income Tax (Investigation), New Delhi. Keeping in
view of the facts and circumstances of the present case and the case law applicable
in the case of the assessee, we are of the considered view that the reopening in
the case of the assessee for the asstt. Year in dispute is bad in law and deserves
to be quashed. Even otherwise, a perusal of the above demonstrates that the Addl.
CIT has written “Approved” which establishes that he has not recorded proper satisfaction
/ approval, before issue of notice u/s. 148 of the I.T. Act. Thereafter, the AO
has mechanically issued notice u/s. 148 of the Act, on the basis of information
allegedly received by him from the Directorate of Income Tax (Investigation), New
Delhi. Keeping in view of the facts and circumstances of the present case and the
case law applicable in the case of the assessee, we are of the considered view that
the reopening in the case of the assessee for the asstt. Year in dispute is bad
in law and deserves to be quashed. Our view is supported by the following judgments/decisions:-
(A)
The Tribunal in its decision dated 9.1.2015 passed in ITA No. 3149/Del/2013 (AY
2003-04) in the case of G&G Pharma India Limited vs. ITO, has held under:-
“8.
We have perused the aforesaid reasons recorded by the AO for reopening the assessment
in dispute and we are of the considered view that the AO has not applied his mind
so as to come to an independent conclusion that he has reason to believe that income
has escaped during the year. A mere reference is made to certain information received
from the Investigation Wing which was supplied to the assessee vide AO’s letter
dated 15.9.2010. In our view the reasons are vague and are not based on any tangible
material as well as are not acceptable in the eyes of law. The AO had mechanically
issued notices u/s. 148 of the Act, on the basis of information allegedly received
by him from the Directorate of Investigation, Jhandewalan, New Delhi. Keeping in
view of the facts and circumstances of the present case and the law applicable in
the case of the assessee, we are of the considered view that the reopening in the
case of the assessee for the asstt. year in dispute is bad in law and deserves to
be quashed. We draw our support from the judgments of the Hon’ble High Court of
Delhi in the following cases:-
(i)
Signature Hotels (P)_ Ltd. vs. ITO and another reported in 338 ITR 51 (Del) has
under similar circumstances as follows:-
“For
the A.Y. 2003-04, the return of income of the assessee company was accepted u/s.143(1)
of the Income-tax Act, 1961 and was not selected for scrutiny. Subsequently, the
Assessing Officer issued notice u/s.148 which was objected by the assessee. The
Assessing Officer rejected the objections. The assessee company filed writ petition
and challenged the notice and the order on objections.
The
Delhi High Court allowed the writ petition and held as under:
“(i)
Section 147 of the Income-tax Act, 1961, is wide but not plenary. The Assessing
Officer must have ‘reason to believe’ that income chargeable to tax has escaped
assessment. This is mandatory and the ‘reason to believe’ are required to be recorded
in writing by the Assessing Officer.
(ii)
A notice u/s.148 can be quashed if the ‘belief’ is not bonafide, or one based on
vague, irrelevant and non-specific information. The basis of the belief should be
discernible from the material on record, which was available with the Assessing
Officer, when he recorded the reasons. There should be a link between the reasons
and the evidence/material available with the Assessing Officer.
(iii)
The reassessment proceedings were initiated on the basis of information received
from the Director of Income-tax (Investigation) that the petitioner had introduced
money amounting to Rs.5 lakhs during F.Y. 2002-03 as stated in the annexure. According
to the information, the amount received from a company, S, was nothing but an accommodation
entry and the assessee was the beneficiary. The reasons did not satisfy the requirements
of section 147 of the Act. There was no reference to any document or statement,
except the annexure. The annexure could not be regarded as a material or evidence
that prima facie showed or established nexus or link which disclosed escapement
of income. The annexure was not a pointer and did not indicate escapement of income.
(iv)
Further, the Assessing Officer did not apply his own mind to the information and
examine the basis and material of the information. There was no dispute that the
company, S, had a paid up capital of Rs.90 lakhs and was incorporated on January
4, 1989, and was also allotted a permanent account number in September 2001. Thus,
it could not be held to be a fictitious person. The reassessment proceedings were
not valid and were liable to the quashed.”
(ii).
In the case of CIT vs. Atul Jain reported in 299 ITR 383 it has been held as under:-
“Held,
dismissing the appeals, that the only information was that the assessee had taken
a bogus entry of capital gains by paying cash along with some premium for taking
a cheque for that amount. The information did not indicate the source of the capital
gains which in this case were shares. There was no information which shares had
been transferred and with whom the transaction had taken place. The AO did not verify
the correctness of information received by him but merely accepted the truth of
the vague information in a mechanical manner. The AO had not even recorded his satisfaction
about the correctness or otherwise of the information for issuing a notice u/s 148.
What had been recorded by the AO as his “reasons to believe”was nothing more than
a report given by him to the Commissioner. The submission of the report was not
the same as recording of reasons to believe for issuing a notice. The AO had clearly
substituted form for substance and therefore the action of the AO was not sustainable.”
9.
In view of above, we are of the considered view that above issue is exactly the
similar to the issue involved in the present appeal and is squarely covered by the
aforesaid decisions of the Hon’ble High Court of Delhi. Hence, respectfully following
the above precedent, we decide the legal issue in dispute in favor of the Assessee
and against the Revenue and accordingly quash the reassessment proceedings. The
other issues are not dealt with as the same have become academic in nature.
10.
In the result, the Appeal filed by the Assessee stands allowed.”
(B).
Pr. CIT vs. G&G Pharma India Ltd. in ITA No. 545/2015 dated 8.10.2015 of the
Delhi High Court wherein the Hon’ble Court has adjudicated the issue as under:-
“12.
In the present case, after setting out four entries, stated to have been received
by the Assessee on a single date i.e. 10th February 2003, from four entities which
were termed as accommodation entries, which information was given to him by the
Directorate of Investigation, the AO stated: "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 account by way of above
accommodation entries." The above conclusion is unhelpful in understanding
whether the AO applied his mind to the materials that he talks about particularly
since he did not describe what those materials were. Once the date on which the
so called accommodation entries were provided is known, it would not have been difficult
for the AO, if he had in fact undertaken the exercise, to make a reference to the
manner in which those very entries were provided in the accounts of the Assessee,
which must have been tendered along with the return, which was filed on 14th November
2004 and was processed under Section 143(3) of the Act. Without forming a prima
facie opinion, on the basis of such material, it was not possible for the AO to
have simply concluded: "it is evident that the assessee company has introduced
its own unaccounted money in its bank by way of accommodation entries". In
the considered view of the Court, in light of the law explained with sufficient
clarity by the Supreme Court in the decisions discussed hereinbefore, the basic
requirement that the AO must apply his mind to the materials in order to have reasons
to believe that the income of the Assessee escaped assessment is missing in the
present case.
13.
Mr. Sawhney took the Court through the order of the CIT(A) to show how the CIT (A)
discussed the materials produced during the hearing of the appeal. The Court would
like to observe that this is in the nature of a post mortem exercise after the event
of reopening of the assessment has taken place. While the CIT may have proceeded
on the basis that the reopening of the assessment was valid, this does not satisfy
the requirement of law that prior to the reopening of the assessment, the AO has
to, applying his mind to the materials, conclude that he has reason
to believe that income of the Assessee has escaped assessment. Unless that basic
jurisdictional requirement is satisfied a post mortem exercise of analysing materials
produced subsequent to the reopening will not rescue an inherently defective reopening
order from invalidity.
14.
In the circumstances, the conclusion reached by the ITAT cannot be said to be erroneous.
No substantial question of law arises.
15.
The appeal is dismissed.”
(C)
ITAT, ‘E’ Bench, New Delhi in the case of ITO vs. M/s NC Cables Ltd. in ITA No.
4122/Del/2009 (AY 2001-02) and in Cross Objection No. 388/Del/2009 in the matter
of M/s NC Cables Ltd. vs. ITO, vide order dated 22.10.2014, the Tribunal has held
as under:-
“10.2.
The Mumbai ‘E’ Bench of the Tribunal in ITA 611/Mum/2004 Amarlal Bajaj (supra) order
dt. 24.7.2013 has considered the legal position and held as follows.
“5.
We have considered the rival submissions and carefully perused the orders of the
lower authorities and also the material evidences brought on 8 record from both
sides. We have also the benefit of perusing the order sheet entries by which the
Ld. CIT has granted sanction. Let us first consider the relevant part of the provisions
of Sec. 151 of the Act.
151.
(1) In a case where an assessment under sub-section (3) of section 143or section
147has been made for the relevant assessment year, no notice shall be issued under
section 148[by an Assessing Officer, who is below the rank of Assistant Commissioner
[or Deputy Commissioner}, unless the [Joint} Commissioner is satisfied on the reasons
recorded by such Assessing Officer that it is a fit case for the issue of such notice}:
Provided
that, after the expiry of four years from the end of the relevant assessment year,
no such notice shall be issued unless the Chief Commissioner or Commissioner is
satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is
a fit case for the issue of such notice. (2) In a case other than a case falling
under sub-section (1), no notice shall be issued under section 148 by an Assessing
Officer, who is below the rank of [Joint} Commissioner, after the expiry of four
years from the end of the relevant assessment year, unless the [Joint} Commissioner
is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit
case for the issue of such notice.}
[Explanation.-For
the removal of doubts, it is hereby declared that the Joint Commissioner, the Commissioner
or the Chief Commissioner, as the case may be, being satisfied on the reasons recorded
by the Assessing Officer about fitness of a case for the issue of notice under section
148,need not issue such notice himself.} "
6.
A simple reading of the provisions of Sec. 151(1) with the proviso clearly show
that no such notice shall be issued unless the Commissioner is satisfied on the
reasons recorded by the AO that it is a fit case for the issue of notice which means
that the satisfaction of the Commissioner is paramount for which the least that
is expected from the Commissioner is application of mind and due diligence before
according sanction to the reasons recorded by the AO. In the present case, the order
sheet which is placed on record show that the Commissioner has simply affixed "approved"
at the bottom of the note sheet prepared by the ITO technical. Nowhere the CIT has
recorded his satisfaction. In the case before the Hon'ble Supreme Court (supra)
that on AO's report the Commissioner against the question "whether the Commissioner
is satisfied that it is a fit case for the issue of notice under section 148 merely
noted “Yes” and affixed his signature there under. On these facts, the Hon'bIe Supreme
Court observed that the important safeguards provided in sections 147 and 151 were
lightly treated by the officer and the Commissioner. The Hon'ble Supreme Court further
observed that the ITO could not have had reason to believe that income had escaped
assessment by reasons of the appellant-firm's failure to disclose material facts
and if the 9 Commissioner had read the report carefully he could not have come to
the conclusion that this was a fit case for issuing a notice under section 148.
The notice issued under section 148 was therefore, invalid. It would be pertinent
here to note the reasons recorded by the AO. "Intimation has been received
from DCIT-24(2), Mumbai vide his letters dt. 22nd February, 2002 that one Shri Nitin
1. Rugmani assessed in his charge had arranged Hawala entries in arranging loans,
expenses, gifts. During the year Shri Amar G. Bajaj, Prop. Of Mohan Brothers, 712,
Linking Road, Khar (W), Mumbai-52 was the beneficiary of such loans, expenses and
gifts. The modus-operandi was to collect cash from the parties to whom loans were
given and cash was deposited into account of Shri Nitin 1. Rugani and cheques were
issued to the beneficiary of the loan transaction. In order to ensure that the money
reached by cheques to the beneficiary Shri Nitin 1. Rugani kept blank cheques of
the third parties. The assessee Shri Amar G. Bajaj had taken benefit of such entries
of loans, commission ad bill discounting of Rs. 8,00,000/-, 11,21,243/- and 9,64,739/-
respectively. The assessment was completed u/s. 143(3) of the 1. T. Act on 31st
March, 1998 by DCIT-Spl. Rg. 40, Mumbai. It is seen from records that the aforesaid
points have not been verified in the assessment. I have therefore reason to believe
that by reason of the failure on the part of the assessee to disclose fully and
truly all material facts necessary for his assessment, income has escaped assessment
within the meaning of proviso to Sec. 147 and explanation 2 (c)(i) of the income-tax
Act, 1961."
7.
In the light of the above mentioned reasons, in our considerate view, Section 147
and 148 are charter to the Revenue to reopen earlier assessments and are, therefore
protected by safeguards against unnecessary harassment of the assessee. They are
sword for the Revenue and shield for the assessee. Section 151 guards that the sword
of Sec. 147 may not be used unless a superior officer is satisfied that the AO has
good and adequate reasons to invoke the provisions of Sec. 147. The superior authority
has to examine the reasons, material or grounds and to judge whether they are sufficient
and adequate to the formation of the necessary belief on the part of the assessing
officer. If, after applying his mind and also recording his reasons, howsoever briefly,
the Commissioner is of the opinion that the AO's belief is well reasoned and bonafide,
he is to accord his sanction to the issue of notice u/s. 148 of the Act. In the
instant case, we find from the perusal of the order sheet which is on record, the
Commissioner has simply put "approved" and signed the report thereby giving
sanction to the AO. Nowhere the Commissioner has recorded a satisfaction note not
even in brief. Therefore, it cannot be said that the Commissioner has accorded sanction
after applying his mind and after recording his satisfaction.
8.
Hon'ble Delhi High Court in the case of' United Electrical Co. Pvt. Ltd. Vs CIT
257 has held that "the proviso to sub-section (1) of section 151of the 10 Act
provides that after the expiry of four years from the end of the relevant assessment
year, notice under section 148 shall not be issued unless the Chief Commissioner
or the Commissioner, as the case may be, is satisfied, on the reasons recorded by
the Assessing Officer concerned, that it is a fit case for the issue of such notice.
These are some in- builts safeguards to prevent arbitrary exercise of power by an
Assessing Officer to fiddle with the completed assessment". The Hon'ble High
Court further observed that "what disturbs us more is that even the Additional
Commissioner has accorded his approval for action under section 147 mechanically.
We feel that if the Additional Commissioner had cared to go through the statement
of the said parties, perhaps he would not have granted his approval, which was mandatory
in terms of the proviso to sub-section (1) of section 151 of the Act as the action
under section 147 was being initiated after the expiry of four years from the end
of the relevant assessment year. The power vested in the Commissioner to grant or
not to grant approval is coupled with a duty. The Commissioner is required to apply
his mind to the proposal put up to him for approval in the light of the material
relied upon by the Assessing Officer. The said power cannot be exercised casually
and in a routine manner. We are constrained to observe that in the present case
there has been no application of mind by the Additional Commissioner before granting
the approval".
9.
The observations of the Hon'ble High Court are very much relevant in the instant
case as in the present case also the Commissioner has simply mentioned "approved"
to the report submitted by the concerned AO. In the light of the ratios/observations
of the Hon'ble High Court mentioned hereinabove, we have no hesitation to hold that
the reopening proceedings visa-vis provisions of Sec. 151 are bad in law and the
assessment has to be declared as void ab initio. Ground No. 1 of assessee's appeal
is allowed.
10.
As we have held that the reassessment is bad in law, we do not find it necessary
to decide other issues which are on merits of the case.”
No contrary judgment or order is brought to our
notice. This being a Co-ordinate Bench order, we are required to follow the same.
The decision cited by the Ld. DR does not pertain to the issue of contravention
of provisions of S. 151 of the Act. These judgments are on other aspects relating
to reopening. Thus respectfully following the decision of the Coordinate Bench in
the matter, we hold that the reopening is bad in law for the reason that the Ld.
CIT(A), Delhi has not recorded his satisfaction as contemplated u/s. 151 of the
Act.”
(D)
ITAT, Mumbi Bench ‘E’ in the case of Amarlal Bajaj vs. ACIT reported in (2013) 37
taxmann.com 7 (Mumbai –Trib) it has been held as under:-
“5.
We have considered the rival submissions and carefully perused the orders of the
lower authorities and also the material evidences brought on record from both sides.
We have also the benefit of perusing the order sheet entries by which the Ld. CIT
has granted sanction. Let us first consider the relevant part of the provisions
of Sec. 151 of the Act. 151. (1) In a case where an assessment under sub-section
(3) of section 143 or section 147 has been made for the relevant assessment year,
no notice shall be issued under section 148 [by an Assessing Officer, who is below
the rank of Assistant Commissioner [or Deputy Commissioner], unless the [Joint]
Commissioner is satisfied on the reasons recorded by such Assessing Officer that
it is a fit case for the issue of such notice] : Provided that, after the expiry
of four years from the end of the relevant assessment year, no such notice shall
be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons
recorded by the Assessing Officer aforesaid, that it is a fit case for the issue
of such notice. (2) In a case other than a case falling under sub-section (1), no
notice shall be issued under section 148 by an Assessing Officer, who is below the
rank of [Joint] Commissioner, after the expiry of four years from the end of the
relevant assessment year, unless the [Joint] Commissioner is satisfied, on the reasons
recorded by such Assessing Officer, that it is a fit case for the issue of such
notice.]
[Explanation.-For
the removal of doubts, it is hereby declared that the Joint Commissioner, the Commissioner
or the Chief Commissioner, as the case may be, being satisfied on the reasons recorded
by the Assessing Officer about fitness of a case for the issue of notice under section
148, need not issue such notice himself.]”
6.
A simple reading of the provisions of Sec. 151(1) with the proviso clearly show
that no such notice shall be issued unless the Commissioner is satisfied on the
reasons recorded by the AO that it is a fit case for the issue of notice which means
that the satisfaction of the Commissioner is paramount for which the least that
is expected from the Commissioner is application of mind and due diligence before
according sanction to the reasons recorded by the AO. In the present case, the order
sheet which is placed on record show that the Commissioner has simply affixed “approved”
at the bottom of the note sheet prepared by the ITO technical. Nowhere the CIT has
recorded his satisfaction. In the case before the Hon’ble Supreme Court (supra)
that on AO’s report the Commissioner against the question “whether the Commissioner
is satisfied that it is a fit case for the issue of notice under section 148 merely
noted " Yes " and affixed his signature there under. On these facts, the
Hon’ble Supreme Court observed that the important safeguards provided in sections
147 and 151 were lightly treated by the officer and the Commissioner. The Hon’ble
Supreme Court further observed that the ITO could not have had reason to believe
that income had escaped assessment by reasons of the appellant-firm's failure to
disclose material facts and if the Commissioner had read the report carefully he
could not have come to the conclusion that this was a fit case for issuing a notice
under section 148. The notice issued under section 148 was therefore, invalid. It
would be pertinent here to note the reasons recorded by the AO.
“Intimation
has been received from DCIT-24(2), Mumbai vide his letters dt. 22nd February, 2002
that one Shri Nitin J. Rugmani assessed in his charge had arranged Hawala entries
in arranging loans, expenses, gifts. During the year Shri Amar G. Bajaj, Prop. Of
Mohan Brothers, 712, Linking Road, Khar (W), Mumbai-52 was the beneficiary of such
loans, expenses and gifts. The modus- operandi was to collect cash from the parties
to whom loans were given and cash was deposited into account of Shri Nitin J. Rugani
and cheques were issued to the beneficiary of the loan transaction. In order to
ensure that the money reached by cheques to the beneficiary Shri Nitin J. Rugani
kept blank cheques of the third parties. The assessee Shri Amar G. Bajaj had taken
benefit of such entries of loans, commission and bill discounting of Rs. 8,00,000/-,
11,21,243/- and 9,64,739/- respectively. The assessment was completed u/s. 143(3)
of the I.T. Act on 31st March, 1998 by DCIT-Spl. Rg. 40, Mumbai. It is seen from
records that the aforesaid points have not been verified in the assessment. I have
therefore reason to believe that by reason of the failure on the part of the assessee
to disclose fully and truly all material facts necessary for his assessment, income
has escaped assessment within the meaning of proviso to Sec. 147 and explanation
2 (c)(i) of the income-tax Act, 1961.”
7.
In the light of the above mentioned reasons, in our considerate view, Section 147
and 148 are charter to the Revenue to reopen earlier assessments and are, therefore
protected by safeguards against unnecessary harassment of the assessee. They are
sword for the Revenue and shield for the assessee. Section 151 guards that the sword
of Sec. 147 may not be used unless a superior officer is satisfied that the AO has
good and adequate reasons to invoke the provisions of Sec. 147. The superior authority
has to examine the reasons, material or grounds and to judge whether they are sufficient
and adequate to the formation of the necessary belief on the part of the assessing
officer. If, after applying his mind and also recording his reasons, howsoever briefly,
the Commissioner is of the opinion that the AO’s belief is well reasoned and bonafide,
he is to accord his sanction to the issue of notice u/s. 148 of the Act. In the
instant case, we find from the perusal of the order sheet which is on record, the
Commissioner has simply put “approved” and signed the report thereby giving sanction
to the AO. Nowhere the Commissioner has recorded a satisfaction note not even in
brief. Therefore, it cannot be said that the Commissioner has accorded sanction
after applying his mind and after recording his satisfaction.
8.
Hon’ble Delhi High Court in the case of United Electrical Co. Pvt.
Ltd. Vs CIT 258 ITR 317 has held that “the proviso to sub- section (1) of section151of
the Act provides that after the expiry of four years from the end of the relevant
assessment year, notice under section 148 shall not be issued unless the Chief Commissioner
or the Commissioner, as the case may be, is satisfied, on the reasons recorded by
the Assessing Officer concerned, that it is a fit case for the issue of such notice.
These are some in-builts safeguards to prevent arbitrary exercise of power by an
Assessing Officer to fiddle with the completed assessment”. The Hon’ble High Court
further observed that “what disturbs us more is that even the Additional Commissioner
has accorded his approval for action under section 147 mechanically. We feel that
if the Additional Commissioner had cared to go through the statement of the said
parties, perhaps he would not have granted his approval, which was mandatory in
terms of the proviso to sub-section (1) of section 151 of the Act as the action
under section 147 was being initiated after the expiry of four years from the end
of the relevant assessment year. The power vested in the Commissioner to grant or
not to grant approval is coupled with a duty. The Commissioner is required to apply
his mind to the proposal put up to him for approval in the light of the material
relied upon by the Assessing Officer. The said power cannot be exercised casually
and in a routine manner. We are constrained to observe that in the present case
there has been no application of mind by the Additional Commissioner before granting
the approval”.
9.
The observations of the Hon’ble High Court are very much relevant in the instant
case as in the present case also the Commissioner has simply mentioned “approved”
to the report submitted by the concerned AO. In the light of the ratios/observations
of the Hon’ble High Court mentioned hereinabove, we have no hesitation to hold that
the reopening proceedings vis-à-vis provisions of Sec. 151 are bad in law and the
assessment has to be declared as void ab initio. Ground No. 1 of assessee’s appeal
is allowed.
10.
As we have held that the reassessment is bad in law, we do not find it necessary
to decide other issues which are on merits of the case.“
(E).
Hon’ble High Court of Madhya Pradesh in the case of CIT vs. S. Goyanka Lime &
Chemicals Ltd. reported in (2015) 56 taxmann.com 390 (MP) has held as under:-
“7.
We have considered the rival contentions and we find that while according sanction,
the Joint Commissioner, Income Tax has only recorded so “Yes, I am Satisfied”. In
the case of ARjun Singh vs. Asstt. DIT (2000) 246 ITR 363 (MP), the same question
has been considered by a Coordinate Bench of this Court and the following principles
are laid down:-
“The
Commissioner acted, of course, mechanically in order to discharge his statutory
obligation properly in the matter of recording sanction as he merely wrote on the
format “Yes, I am satisfied” which indicates as if he was to sign only on the dotted
line. Even otherwise also, the exercise is shown to have been performed in less
than 24 hours of time which also goes to indicate that the Commisisoner did not
apply his mind at all while granting sanction. The satisfaction has to be with objectivity
on objective material.
8.
If the case in hand is analysed on the basis of the aforesaid principle, the mechanical
way of recording satisfaction by the Joint Commissioner, which accords sanction
for issuing notice under section 148, is clearly unsustainable and we find that
on such consideration both the appellate authorities have interfered into the matter.
In doing so, no error has been committed warranting reconsideration.”
(F.)
Hon’ble Supreme Court of India in the case of CIT vs. S. Goyanka Lime & Chemical
Ltd. reported in (2015) 64 taxmann.com 313 (SC) in the Head Notes has held that
“Section 151, read with section 148 of Income Tax Act, 1961 - Income escaping assessment
- Sanction for issue of notice (Recording of satisfaction) - High Court by impugned
order held that where Joint Commissioner recorded satisfaction in mechanical manner
and without application of mind to accord sanction for issuing notice under section
148, reopening of assessment was invalid - Whether Special Leave Petition filed
against impugned order was to be dismissed - Held, Yes (in favour of the Assessee).”
9.
In view of above, we are of the considered view that the above issue is exactly
the similar and identical to the issue involved in the present appeal and is squarely
covered by the aforesaid decisions of the Hon’ble Supreme Court of India, Hon’ble
High Courts of Delhi & Madhya Pradesh & ITAT, Delhi & Mumbai. Hence,
respectfully following the above precedents, we decide the legal issue in dispute
in favor of the Assessee and against the Revenue and quash the reassessment proceedings
being bad in law.
10.
As we have held that the reassessment is bad in law, we do not find it necessary
to decide other issues which are on merits of the case.
11.
In the result, the Assessee’s Appeal stands allowed. Order pronounced in Open Court
on this 22-04-2016.
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