ACIT, NEW DELHI V. M/S. A & D ESTATES PVT. LTD., NEW DELHI

ITA 1729/DEL/2016

AI Insights

The case involves an appeal by the revenue against the order of the Ld. CIT(A) which had quashed the reassessment order passed by the ACIT, Central Circle-2, New Delhi. The reassessment was initiated based on a search and seizure operation at S.S. Group of cases, which allegedly revealed unaccounted funds introduced into various companies, including A&D Estates Pvt. Ltd. The revenue challenged the CIT(A)'s decision, arguing that the CIT(A) erred in deleting the addition of Rs.22,85,00,000 on account of unexplained cash credits and in holding the reopening of assessment as non-sustainable. The Tribunal, however, agreed with the CIT(A) that the reasons for reopening the assessment were vague and lacked a live nexus with the belief of escapement of income, thus not meeting the legal standards required for such action under section 147 of the Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 668876 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Other Referred Cases: National Power Thermal Limited vs. CIT, Calcutta Discount Co. Ltd. vs. ITO, Ganga Saran & Sons Pvt. Ltd. vs. ITO, S. Narayanappa vs. CIT, Phool Chand Bajrang Lal vs. ITO, Indian Oil Corporation vs. ITO, CIT vs. Ram Lal Manohar Lal, Lupin Ltd. vs. Assistant Commissioner of Income-tax (LTU), Mumbai, Signature Hotels Pvt. Ltd. vs. ITO, Pr.CIT vs. India Business Network Ltd., Pr. CIT vs. G&G Pharma India Ltd., Commissioner of Income-tax-V vs. Orient Craft Ltd., Commissioner of Income-tax, Delhi vs. Kelvinator of India Ltd., Commissioner of Income Tax -Central I vs. Indo Arab Air Services, Income-tax Officer vs. Varshaben Sanatbhai Patel
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reassessment proceedings; Unexplained cash credit; Income from undisclosed sources; Bonafide belief; Reopening of assessment; Search and seizure; Source of fund; Reason to believe; Tangible material; Borrowed satisfaction
• Section: 147; 148; 143(3); 132; 68

Judgement Text

"1 ITA No. 1729/Del/2016 ACIT v. A&D Estates (P) Ltd. A.Y. 2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E ”: NEW DELHI BEFORE Ms. MADHUMITA ROY, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No. 1729/DEL/2016 Assessment Year: 2012-13 ACIT, Central Circle-2, New Delhi. Vs A & D Estates Pvt. Ltd., R/o. B-4/43, 2nd Floor, Safdarjung Enclave, New Delhi-110029. PAN: AAFCA 2604 L APPELLANT RESPONDENT Assessee represented by Dr. Rakesh Gupta, Adv.; & Sh. Saksham Agarwal, CA Department represented by Ms. Amisha S. Gupta CIT(DR) Date of hearing 08.05.2025 Date of pronouncement 25.06.2025 O R D E R PER Ms. MADHUMITA ROY, JM: The instant appeal filed by the revenue is directed against the order dated 29.01.2016 passed by the Ld. CIT(A)-23, New Delhi, arising out of the assessment order passed by the ACIT, Central Circle -2, New Delhi dated 20.03.2015 under 2 ITA No. 1729/Del/2016 ACIT v. A&D Estates (P) Ltd. A.Y. 2012-13 Section 148/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year 2012-13. 2 Revenue vide application dated 15.06.2023 has raised request for admission of additional ground, thus ground involved in instant appeal of revenue are as under: “1. The order of Ld. CIT(A) is not correct in law and facts. 2. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.22,85,00,000/- on account of unexplained cash credits' u/s 68 received from M/s Manan Merchandise Pvt Ltd. 3. The Ld. CIT(A) has erred in holding the reopening of assessment by issuance of notice u/s 148 of the Act as non sustainable and not legally valid without going through the facts and merits of the case. 4. The appellant craves leave to add, amend any / all the ground of appeal before or during the course of hearing of the appeal.” 2.1 Ground 3 (supra), additional ground of appeal, being legal in nature and does not require any fresh material to adjudicate, and having regard to the facts and circumstances of the case, and the ratio laid down by the Hon’ble Supreme Court in the case of National Power Thermal Limited, reported in 229 ITR 383 (SC) (supra), we are of the considered opinion that the additional ground as narrated in the foregoing paragraph in regard to the decision of learned CIT(A) holding, reopening of assessment by issuance of notice u/s 148 of the Act, as non- sustainable, being without jurisdiction goes to the root of the matter and thus this additional ground demands adjudication at the very threshold by us. In that view of the matter, the additional ground is, therefore, admitted. 3 ITA No. 1729/Del/2016 ACIT v. A&D Estates (P) Ltd. A.Y. 2012-13 3 Apart from that assessee also seeks to support the order of the Ld. CIT(A) as in view of provision of Rule 27 of the ITAT Rules, and raised the following Grounds:- “(1) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in rejecting the ground relating to validity of notice u/s 143(2) and consequentially validity of impugned assessment order vide para 4.1.3 of the appeal even though return was filed on 27.02.2015 and notice u/s 143(3) was also issued on 27.02.2015 which is contrary to following decisions: …. (2) “That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not quashing the impugned order.” 4 Taking up the additional grounds of appeal raised by revenue, in respect of validity of initiation of instant assessment proceedings by issuance of notice u/s 148 of the Act held as non-sustainable being without jurisdiction by ld. CIT(A). Reasons recorded by ld. AO as placed in paper book filed by assessee is extracted hereunder: “Reasons for issuance of notice u/s. 148 of the Income-tax Act. 1961 A search and seizure operation u/s 132 of the Income-tax Act, 1961 was carried out at S.S. Group of cases on 08.02.2013. The examination of balance sheets and post search inquiries revealed that the above referred five concerns of S. S Group have received 'Certain Funds' from certain Kolkata based companies. These funds are unaccounted funds amounting to Rs. 77.70 crores owned by this group, channelized through Kolkata based concerns. The details of introduction of such funds into the concerns of SS Group from these Kolkata based companies are described as under: S.No. Name & Address of the Kolkata based company Name the Group S.S. company in which funds introduced Head under which introduced Amount (In Rs. lakhs) Financial Year(s) 4 ITA No. 1729/Del/2016 ACIT v. A&D Estates (P) Ltd. A.Y. 2012-13 1 Manan Merchandise Pvt. Ltd. A & D Estates Pvt. Ltd. Current Liability 2285 2011-12 2. The source of Kolkata based companies is as under: M/s. Manan Merchandise Pvt. Ltd. The source of Rs 29.2 crores transferred to M/s. Sea Point Trading & M/s. Builders Pvt. Ltd and M/s. A & D Estates Pvt. Ltd was Share Premium of Rs. 28.9 crores introduced in the company (i.e. M/s. Manan Merchandise Pvt. Ltd.) in its year of incorporation in FY 2009-10. The bank account of M/s. Manan Merchandise Pvt. Ltd. showed that substantial funds had been transferred from the seven paper companies into the account of M/s. Manan Merchandise Pvt. Ltd. 3. From the above it is noticed that huge amounts of unaccounted income of the S. S. Group generated through its real estate business have been introduced into above mentioned Kolkata based company as share premium. The directors of this company are either relatives or close friends of Shri Sukhbir Singh Jaunapuria. These funds have then been routed into the concerns of the S. S. Group under different heads. 4. In view of the facts and circumstances, I have reason to believe that income to the tune of Rs. 22,85,00,000/- has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961 for the year under consideration. Hence, this is fit case for issuance of notice u/s. 148 of the Income-tax Act, 1961. Notice u/s. 148 of the Act issued.” 5 The assessee has made following submissions before ld. CIT(A): “Ground No. 1 & 2: Ld. AO has reopened the assessment u/s 147 even though jurisdictional conditions were not satisfied in this case and hence jurisdiction assumed u/s 147 is bad in law and so is the reassessment order passed. 5 ITA No. 1729/Del/2016 ACIT v. A&D Estates (P) Ltd. A.Y. 2012-13 PB 14-15 is the copy of ‘reason’ recorded according to which examination of balance sheets and post search enquires revealed that the above referred five concern of SS group have received certain funds from certain Kolkata based companies which were unaccounted funds owned by this group. Bare perusal and reading of the reason would show that the reason recorded is highly vague, too general & lacks precision. It is more than evident from the reading of the reason recorded that there is no material for the formation of the belief, much less the material having live nexus with the belief of escapement of any income. It is settled law that power to reopen a concluded assessment is not an unfettered right and it is circumscribed with statutory safeguards. Such safeguards are that there must be material, having live nexus with the belief of escapement of income. First, it is submitted that there was no material on the basis of which this belief could be formed. Second, even if some material was there, there was certainly no live nexus between the material and the formation of the impugned belief. It is settled law that power to reopen an assessment is not an unfettered power Ld. A.O. Law attaches great sanctity to the finality of the assessment. Such power of reopening is circumscribed with important limitations prescribed under the law. After all power to reopen, as submitted above, is not an unfettered power of Ld. AO and it has to be based on material having live nexus with the formation of belief. If Ld. AO is allowed to write his conclusions in the \"reason\" without any material, finality of assessment to which the law attaches the great sanctity will be an eye wash. It is settled law that \"reason to believe forms the foundation for assuming jurisdiction u/s 147. It is also settled law that reason to believe is not just an idle formality and it has not to be mere pretence. If there is no material or even if there is material which does not have live nexus with the formation of belief. reopening of the assessment on the basis of such material is not sustainable. 6 ITA No. 1729/Del/2016 ACIT v. A&D Estates (P) Ltd. A.Y. 2012-13 The expression \"reason to believe\" predicated that the assessing officer holds the belief induced by the existence of reasons for holding such belief. It contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons inducing the belief. Such a belief has not to be based on mere suspicion but it must be based on information as was held by Hon'ble Supreme Court in the case of Calcutta Discount Co. Ltd. Vs. ITO 41 ITR 191. Hon'ble Supreme Court in Ganga Saran & Sons Pvt. Ltd. vs. ITO 130 ITR 1. have held that the words \"reason to believe\" are stronger than the word \"satisfied\" and the belief entertained must not be arbitrary or irrational and it must be reasonable and be based on reasons which are relevant and material. It was held by Hon'ble Supreme Court in the case of S. Narayanappa vs. CIT 63 ITR 219 that belief must be held in good faith and it cannot be merely a pretention. It is open to the court to examine whether the reasons for the belief have a rational connection or relevant bearing to the formation of the belief and to this extent action of Ld. A.O. in starting the proceeding u/s 147 is open to challenge in a court. It is open to the court to examine the question whether the reasons for belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section as was held in the following cases Ganga Saran & Sons Pvt. Ltd. vs. ITO (1971) 82 ITR 29 (Cal). Y. Rajan vs. ITO (1970) 77 ITR 839 (AP) CIT vs. Jeskaran Bhuvalka (1970) 76 ITR 128, 140 (AP) Muni Lai Ram Dayal Vs. ITO (1970) 76 ITR 151, 156 (Orissa) Dilip Chand Agarwal Vs. ITO (1974) Tax LR 865 (Orissa). The belief of the AO. should not thus be a product or imagination or speculation The belief must be of an honest and reasonable person based upon reasonable grounds. His belief must not be based on mere suspicion. It is open to an assessee to establish that there in fact existed no belief or that the belief was not at all bonafide or was based on vague, irrelevant & non- specific information as was held by Supreme Court in the case of Phool Chand Bajrang Lal Vs. ITO 203 ITR 456. 7 ITA No. 1729/Del/2016 ACIT v. A&D Estates (P) Ltd. A.Y. 2012-13 \"Reason to believe\" is not the same thing as \"reason to suspect\" as was held in Indian Oil Corporation Vs. ITO 159 ITR 956, 970 (SC) and mere suspicion cannot be made the basis for issuance of reassessment notice as was held in CIT Vs. Ram Lal Manohar Lal 158 ITR 9, 11(Del). It is equally settled law that the action of reopening has to be judged only on the basis of the reason recorded and no extraneous material can be supplemented to see the validity of reopening. ….” 6 The Ld. Commissioner of Income Tax (Appeal) has decided the issue under consideration in favour of assessee by recorded his finding, as extracted hereunder: “4.1.6 Coming to the reasons recorded by the AQ for arriving at the satisfaction for reopening the assessment u/s 147 of the Act, the appellant, at page 20-21 of the PB has enclosed copy of the reasons recorded obtained from the AO. On perusal of the reasons it is seen that the AO has observed as under: “… the examination of balance sheets and post search enquiries revealed that ‘the above referred five concerns of SS group' have received 'certain funds’ from certain Kolkata based companies. These funds are 'unaccounted funds' amounting to Rs.77.70 crore owned by this group. channelized through Kolkata based concerns (emphasis supplied). and after giving the details of the amount of MMPL and the financial year, the AO has further observed that, \"the source of Rs.22.85 crore transferred to A&DEPL (the appellant) was share premium of Rs.28.90 crore introduced in the company (MMPL) in its year of incorporation in FY 2009-10 and has concluded that, 8 ITA No. 1729/Del/2016 ACIT v. A&D Estates (P) Ltd. A.Y. 2012-13 \"the huge amount of 'unaccounted income of the SS group generated through its real estate business have been introduced into above mentioned Kolkata based company as share premium\" and has stated that he has reason to believe that income to the tune of Rs.22.85 crore has escaped assessment. 4.1.6.2 The AO right in the beginning of the reasons recorded has observed that these funds are \"unaccounted funds\" without making any observation as to how these funds were generated and from what activity, how and why these funds are 'unaccounted and based on what material evidence such conclusion was drawn. Though stating that the source of MMPL was share premium received in the preceding year, he also states that the unaccounted income of the SS group generated through its real estate business have been introduced into above mentioned Kolkata based company as share premium without observing as to what is the evidence available or brought on record to suggest that such amount represented unaccounted income was generated from real estate and the same was introduced as share premium in MMPL in spite of the fact that the bank statement of MMPL submitted to the AO indicates that the amounts deposited in the account of MMPL is through cheques received from different persons and not from the appellant's account nor in cash. The satisfaction of the AO is thus based on mere surmises and conjectures as has been alleged by the appellant. It is well settled law that the satisfaction of the AO has to be based on material evidence brought on record and the AO has to examine the information or evidence available with him/her, make necessary enquiries relevant to the matter and apply his mind before arriving at the satisfaction, which is absent from the reasons recorded by the AO in this case. It is also settled law that mere information from the Investigation Wing. unverified by the AO, cannot form the basis of bonafide belief of the AO. 4.1.7 As regards reopening of assessment u/s 147 of the Act and recording of reasons therefor, it is settled law as held by various Courts including the H'ble Supreme Court that the belief of the A.O. should not be a product or imagination or speculation; the belief must be of an honest and reasonable person based upon reasonable grounds; that the belief must not be based on 9 ITA No. 1729/Del/2016 ACIT v. A&D Estates (P) Ltd. A.Y. 2012-13 mere suspicion; the belief must not be vague and there must be material, having live nexus with the belief of escapement of income; the belief entertained must not be arbitrary or irrational and it must be reasonable and be based on reasons which are relevant and material, there should be facts before the A.O. that reasonably give rise to such belief that income has escaped assessment and the formation of belief is possible only on the basis of certain material and if there was no such material, reason to believe cannot be entertained, certain facts, specific in nature and reliable in character, have to exist to show that assessment can be reopened and the existence of such reasons and a direct nexus between those reasons and the alleged evasion is a condition precedent for reopening of assessment, and in the absence of application of mind to the facts alleged to have been found the decision arrived at that income escaped assessment is not maintainable in law. Further, in Lupin Ltd. v. Assistant Commissioner of Income-tax (LTU), Mumbai [2014] 46 taxmann.com 396 (Bombay) it has been held that “.... the reasons recorded should be clear and unambiguous and should not suffer from any vagueness The reasons are the manifestation of the mind of the Assessing Officer and therefore, should be self-explanatory and should not keep the Assessee guessing for the reasons......... the AO must disclose in the reasons as to which fact or material was not disclosed by the Assessee fully and truly necessary for assessment for that assessment year, so as to establish the vital link between the reasons and the evidence, and that this vital link is the safeguard against arbitrary re-opening of a concluded assessment\"; in CIT vs SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del), Signature Hotels Pvt. Ltd. Vs ITO 338 ITR 51 (Del), (Pr.CIT v India Business Network Ltd.) and Pr. CIT v G&G Pharma India Ltd. (ITA No. 545/2015) Delhi High Court order dated 08.10.2015 it has been held that \"mere information received from DDIT(Inv) cannot constitute valid reasons for initiating reassessment proceedings in the absence of anything to show that A.O. had independently applied his mind to arrive at a belief that the income had escaped assessment and that \"an assessment cannot be reopened without the AO having made necessary enquiry before initiating of the assessment proceeding to arrive at his own independent satisfaction regarding the escapement of income\". The appellant has cited quite a few judgments on this account and further reliance is placed on Commissioner of Income-tax-V v. Orient Craft Ltd. [2013] 29 taxmann.com 392 (Delhi), Commissioner of Income-tax, Delhi v. Kelvinator of India Ltd. [2010] 187 10 ITA No. 1729/Del/2016 ACIT v. A&D Estates (P) Ltd. A.Y. 2012-13 TAXMAN 312 (SC), Commissioner of Income Tax -Central I v Indo Arab Air Services [2015] 64 taxmann.com 257 (Delhi), Income-tax Officer v. Varshaben Sanatbhai Patel [2015] 64 taxmann.com 179 (Gujarat). Therefore, the reopening of assessment by issuance of notice u/s 148 of the Act is not sustainable and cannot be held legally valid in terms of the various pronouncements in this regard. As such, considering the circumstances of reopening of the assessment together with the observations at para-4.1.4 herein above, the reassessment order u/s 147 of the Act is not sustainable. I hold accordingly. This ground is therefore allowed.” 7 On perusal of aforesaid finding of the Ld. CIT(A) alongwith reasons recorded by the Ld. Assessing Officer, it is evident that the Ld. Assessing Officer while recording reasons to believe, began with search and seizure carried out at S.S. Group of cases on 08.02.2013 u/s 132 of the Act, thereafter he has stated that on examination of balance sheets and post search inquiries revealed that the above referred five concerns of S.S. Group have received ‘Certain Funds’ from certain Kolkata based companies. Before going into further in record, it is important to note here that the Ld. AO has stated that the on examination of balance sheets and post search inquiries revealed that the above referred five concerns, however there is no reference of any single concern in preceding portion of reasons recorded, perhaps that is the reasons, he has recorded in vague terms that these unknown entities has received ‘Certain Funds’ from certain companies. It is well settled proposition that reasons recorded have to be read alone, it cannot be supplemented by any other material. Thus, having so, we are of concurrent view as of the Ld. CIT(A) that the reasons recorded are vague, and reflects non-application of mind at the time of recording the reasons to believe u/s 148(2) of the Act. Thereafter, the Ld. AO in the aforesaid background, without recording the fact that balance sheet of which companies have been examined and what post search enquiry was conducted, came to conclusion that the unaccounted funds amounting to Rs. 77.70 11 ITA No. 1729/Del/2016 ACIT v. A&D Estates (P) Ltd. A.Y. 2012-13 crores owned by this group, channelized through Kolkata based concerns and has tabulated the details of introduction of such funds into the concerns of SS Group from these Kolkata based companies. Thereafter, he recorded the source of funds in M/s Manan Merchandise (P) Ltd., the entity, in whose name liabilities are in the books of assessee company, hereto the Ld. AO in vague terms has recorded that the funds has been transferred from seven paper companies into the account of M/s Manan Merchandise (P) Ltd.. Thus upto para 2 of reasons recorded the Ld. AO fails to record any specific facts based on tangible material except the facts of credits in the books of assessee company, which is otherwise recorded in the books of accounts itself. In Para 3, the Ld. AO recorded that the huge amounts of unaccounted income of the S.S. Group generated through its reals business have been introduced into the above mentioned Kolkata based company at share premium, whose directors are either relatives or close friends of Shri Sukhbr Singh Januapuria and these funds then have been routed into the concerns of the S.S. Group under different heads. In para 4, the Ld. AO concluded his reasons recorded. Having regard to aforesaid facts, we are of the view that upon consideration of reasons recorded, the same is found to be vague, having no tangible material, based on borrowed satisfaction, these could be at the best reasons to suspect not reasons to believe, which is not permissible. Thus, we find the order of the Ld. CIT(A) is just and proper so as not to warrant interference. In the result we upheld the decision of the Ld. CIT(A), holding that the initiation of instant reassessment proceedings is without jurisdiction and thus, quashed. In the result, revenue fails in its additional ground. 12 ITA No. 1729/Del/2016 ACIT v. A&D Estates (P) Ltd. A.Y. 2012-13 8 As far as other grounds of the revenue and application of the assessee under Rule 27 of Income Tax Appellate Rules, once we have quashed the initiation of the proceedings u/s 147 of the Act, these remain academic in nature. 9 In the result appeal of the revenue is dismissed. Order pronounced in open court on 25.06.2025. Sd/- Sd/- (MANISH AGARWAL) (Ms. MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 25.06.2025. *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "