ACIT, CIRCLE-10(1) , NEW DELHI V. INDEX SECURITIES & RESEARCH PVT LTD, NEW DELHI

ITA 2180/DEL/2022

AI Insights

The case involves the Revenue's appeal against the CIT(A)'s decision to delete the addition of 2% commission income made by the Assessing Officer, which was based on the allegation that the assessee was providing accommodation entries for a commission. The assessee contested the jurisdiction of the Assessing Officer under sections 147/148 of the Income Tax Act, arguing that the addition made was not based on the reasons recorded for reopening the assessment. The Tribunal found merit in the assessee's argument, citing judicial precedents that restrict the Assessing Officer from making additions based on reasons other than those recorded at the time of reopening the assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 33621 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Other Referred Cases: B.R.Bamsi v/s CIT, Moralia & Sons v/s CIT, CIT v/s Cochin Refineries Ltd, Assam Company (I) Ltd v/s CIT, ITO v/s Gurvinder Kaur, CIT V. Varas International P.Ltd., KharidVechan Sangh Ltd. vs CIT, CIT vs Jindal Polyster Ltd, Ranbaxy Laboratories vs CIT, ATS Infrastructure Ltd vs CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DAYAINDER SINGH SIDHU
• Assessee Lawyers: SALIL AGGARWAL
• Keywords: Gift; Accommodation entries
• Section: 147; 148; 143(3); 80HH

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘C’ BENCH, NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 2180/DEL/2022 [A.Y 2011-12] The A.C.I.T Vs. Index Securities & Research Pvt Ltd Circle - 10(1) Office No 4, Basement–1, Plot No. 4 New Delhi Radisson Blue Hotel, Dwarka, New Delhi PAN: AAACI 2919 K (Applicant) (Respondent) Assessee By : Shri Salil Aggarwal, Sr Adv. Shri Uma Shankar, Adv Department By : Shri Dayainder Singh Sidhu, CIT-DR Date of Hearing : 03.01.2025 Date of Pronouncement : 22.01.2025 ORDER PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:- This appeal by the Revenue is preferred against the order of the ld. CIT(A)-27, Delhi dated 07.07.2022 pertaining to A.Y 2011-12. 2 2. The solitary ground raised by the Revenue reads as under: “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the Assessing Officer as the commission income at 2% without appreciating that the material found during the course of search, post search investigation and investment and assessment clearly established that the assessee is just into the business of providing accommodation entries in lieu of commission?” 3. The assessee has filed an application u/r 27 of the Income tax Tribunal Rules, 1963 [‘the Rules” for short] raising additional grounds of appeal which read as under: \"Additional Ground No. 1 That the learned Commissioner of Income Tax (Appeals) has grossly erred in law and on facts in sustaining the initiation of proceedings under section 147/148 of the Act and, further completion of assessment under section 147 r.w.s. 143(3) of the Act without satisfying the statutory pre-conditions for initiation of the proceedings and, completion of assessment under the Act. Additional Ground No. 2 That further, learned Commissioner of Income Tax (Appeals) has failed to appreciate the fact that no addition whatsoever was made by learned assessing officer on the basis of reasons recorded, as such, the instant proceedings, so initiated are bad in law and without jurisdiction.\" 3 4. The ld. counsel for the assessee relied upon the following judicial pronouncements: 1. 83 ITR 223 (Bom) (B.R.Bamsi v/s CIT) 2. 129 ITR 475 (All) (Moralia & Sons v/s CIT) 3. 220 ITR 398 (Ker) (CIT v/s Cochin Refineries Ltd) 4. 176 CTR 406 (Gau) (Assam Company (I) Ltd v/s CIT) 5. 102 ITD 189 (Del) (ITO v/s Gurvinder Kaur) 6. 284 ITR 80 (SC) CIT V. Varas International P.Ltd. 7. 149 Taxmann 456 (Guj) KharidVechan Sangh Ltd. vs CIT, 8. 397 ITR 282 (All) CIT vs Jindal Polyster Ltd. 5. As the issue raised in the application u/r 27 of the Rules goes to the root of the matter of jurisdiction of the Assessing Officer, the same is admitted. 6. Facts, in brief, are that during the course of assessment proceedings, the Assessing Officer noticed that the assessee company is involved in providing accommodation entries to various beneficiaries and for this service, he has charged commission. The Assessing Officer further found that the assessee had provided accommodation entries amounting to Rs. 527.28 crores on which the assessee had earned 2% as commission. Accordingly, the Assessing Officer made addition of Rs. 10,54,57,820/- as undisclosed income of the assessee and added the same to the total income of the assessee company. 4 7. When the aggrieved assessee went in appeal before the ld. CIT(A), the ld. CIT(A) came to the conclusion that the assessee is a NBFC company and not a paper company providing accommodation entries and deleted the addition. 8. Now the Revenue is in appeal before us against the deletion of 2% commission income whereas the assessee has filed additional ground u/r 27 of the Rules contesting that the Assessing Officer has not properly assumed jurisdiction u/s 147 of the Act. 9. Before us, the ld. counsel for the assessee vehemently stated that the Assessing Officer has recorded a reason that the assessee has received Rs. 5 lakhs from M/s R.K.G. Finvest Ltd in the form of accommodation entry. However, while making assessment, the Assessing Officer has not considered the reasons recorded and has made addition on a different reason of assessee providing accommodation entries and earning commission on it @ 2%. 10. The ld. counsel for the assessee further pointed out that the reasons recorded was alluding to the fact of receipt of accommodation 5 entry whereas the addition was made on account of the assessee providing accommodation entry. The ld. counsel for the assessee referred to the decision of the Hon'ble Delhi High Court in the cases of Ranbaxy Laboratories 336 ITR 136 and in the case of ATS Infrastructure Ltd 166 Taxmann.com 61. 11. Per contra, the ld. DR vehemently contended that the Assessing Officer has taken the entire debit entries in the bank account of the assessee and calculated 2% of the same as commission. It is the say of the ld. DR that the Assessing Officer has taken into account the reasons recorded for reopening and, therefore, the reopening is valid. 12. We have heard the rival submissions and have perused the relevant material on record. We find substantial force in the averment of the ld. counsel for the assessee that the reasons recorded are materially different from the reasons for which assessment has been made. We find that the reopening has been made on account of receipt of amount of Rs 5 lakh from M/s RKG Finvest whereas the addition has been made on the commission received on amount paid by the assessee to various entities which were considered as 6 accommodation entries which is emanating from Para 6 of the assessment order which reads as under: “6 On perusal of bank statement of Assessee Company, It is observed that the bank account number 65056415724 with State Bank of Patiala, 0270201006334 with Canara Bank and 106047 with Punjab National Bank are immediately debited (through cheque or RTGS), once an amount is credited (mainly with cheque) leaving a minimum balance. From the above analysis it is clear that the Assessee Company is involved in providing accommodation entries to various beneficiaries and for this it must have charged commission on the same. Information gathered from the market reveals that commission at a minimum of 2% is charged for providing accommodation entries. Since, total amount of Rs. 527,28,91,015/- has been debited from the above bank accounts of the Assesee Company, therefore 2% of the commission income must be earned by the assessee company which comes to Rs. 10,54,57,820/-.” 13. The issue of whether the Assessing Officer can make addition on account of reasons other than the reasons recorded has been decided by the decision of the Hon'ble Jurisdictional High Court in the case of ATS Infrastructure [supra] wherein their Lordships have held as under: 7 “29. In our considered opinion, and bearing in mind the import of Explanation 3 as well as the language in which Section 147 of the Act stands couched, we find no justification to differ from the legal position which had been enunciated in Ranbaxy Laboratories Ltd. We also bear in consideration the said decision having been affirmed and approved subsequently in Commissioner of Income-tax (Exemption) vs. Monarch Educational Society and Commissioner of Income-tax vs. Software Consultants. 30. We thus, come to the conclusion that the enunciation with respect to the indelible connection between Section 148A(b) and Section 148 A(d) of the Act are clearly not impacted by Explanation 3. As we read Sections 147 and 148 of the Act, we come to the firm conclusion that the subject of validity of initiation of reassessment would have to be independently evaluated and cannot be confused with the power that could ultimately be available in the hands of the AO and which could be invoked once an assessment has been validly reopened. 31. Explanation 3, or for that matter, the Explanation which presently forms part of Section 147, would come into play only once it is found that the power to reassess had been validly invoked and the formation of opinion entitled to be upheld in light of principles which are well settled. The Explanations would be applicable to issues which may come to the notice of the AO in the course of proceedings of reassessment subject to the supervening requirement of the reassessment action itself having been validly initiated. 8 32. Explanation 3, cannot consequently be read as enabling the AO to attempt to either deviate from the reasons originally recorded for initiating action under Section 147/148 of the Act nor can those Explanations be read as empowering the AO to improve upon, supplement or supplant the reasons which formed the bedrock for initiation of action under the aforenoted provisions. 33. The writ petitions are accordingly allowed and the impugned notices and orders in each of the above-captioned writ petitions are quashed. The impugned orders under Section 148A(d) dated 31.07.2022 [W.P.(C) 3807/2023], 23.07.2022 [W.P.(C) 3804/2023], and 29.07.2022 [W.P. (C) 3808/2023], respectively as well as the notices under Section 148 dated 31.07.2022 [W.P.(C) 3807/2023], 23.07.2022 [W.P.(C) 3804/2023], and 29.07.2022 [W.P.(C) 3808/2023], respectively are hereby quashed.” 14. Similarly, in the case of Ranbaxy Laboratories [supra], the Hon'ble High Court has held as under: “18. We are in complete agreement with the reasoning of the Division Bench of Bombay High Court in the case of Jaganmohan Rao (supra). We may also note that the heading of Section 147 is \"income escaping assessment\" and that of Section 148 \"issue of notice where income escaped assessment\". Sections 148 is supplementary and complimentary to Section 147. Sub-section (2) 9 of Section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (1) thereof mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or recompute escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per explanation (3) if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under Section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under Section 148. 19. In the present case, as is noted above, the Assessing Officer was satisfied with the justifications given by the assessee regarding 10 the items viz., club fees, gifts and presents and provision for leave encashment, but, however, during the assessment proceedings, he found the deduction under Section 80 HH and 80-I as claimed by the assessee to be not admissible. He consequently while not making additions on those items of club fees, gifts and presents, etc., proceeded to make deductions under Section 80HH and 80-I and accordingly reduced the claim on these accounts. 20. The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under Section 80 HH and 80-I which as per our discussion was not permissible. Had the Assessing Officer proceeded not to make dis-allowance in respect of the items of club fees, gifts and presents, etc., then in view of our discussion as above, he would have been justified as per explanation 3 to reduce the claim of deduction under Section 80 HH and 8-I as well. 21. In view of our above discussions, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive. Consequently, we answer the first part of question in affirmative in favour of Revenue and the second part of the question against the Revenue.” 11 15. As mentioned elsewhere, the facts of the case in hand are pari materia same as the facts considered by the Hon'ble High Court [supra]. In the instant case the very basis for initiation of proceedings u/s 148 were the reasons recorded that the income escaped assessment in respect of accommodation entries received. The Assessing Officer however discarded the reasons recorded and proceeded to add the commission income which the assessee would have received on account of providing accommodation entries. Therefore, we have no hesitation in allowing the application of the assessee u/r 27 of the Rules and hold that the instant proceedings u/s 148 so initiated are bad in law and without jurisdiction. We, accordingly, dismiss the ground raised by the Revenue. 16. In the result, the appeal of the Revenue in ITA No. 2180/DEL/2024 is dismissed. The order is pronounced in the open court on 22.01.2025. Sd/- Sd/- [CHALLA NAGENDRA PRASAD] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 22nd JANUARY, 2025. VL/ 12 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) Asst. Registrar, 5. DR ITAT, New Delhi Sl No. PARTICULARS DATES 1. Date of dictation of Tribunal Order… 2. Date on which the typed draft Tribunal Order is placed before the Dictation Member 3. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 4. Date on which the approved draft Tribunal Order comes to the Sr. P.S./P.S. 5. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 6. Date on which the signed order comes back to the Sr. P.S./P.S 7. Date on which the final Tribunal Order is uploaded by the Sr. P.S./P.S. on official website 8. Date on which the file goes to the Bench Clerk alongwith Tribunal Order 9. Date of killing off the disposed of files on the judiSIS portal of ITAT by the Bench Clerks 10. Date on which the file goes to the Supervisor (Judicial 11. The date on which the file goes to the Assistant Registrar for endorsement of the order 12. Date of Despatch of the Order "