CASE NEW HOLLAND AND CONSTRUCTION EQUIPMENT PVT. LTD.,NEW DELHI V. ACIT, CIRCLE-5(2), NEW DELHI

ITA 1926/DEL/2023

AI Insights

The case involves New Holland and Construction Equipment (India) Pvt Ltd, which appealed against the reassessment order for the assessment year 2013-14. The reassessment was initiated by the Assessing Officer based on information received from the Investigation Wing regarding alleged bogus sales transactions amounting to Rs. 18,22,000 to Dinesh Chandra R. Agarwal Infracon Pvt Ltd (DRAIPL). The Tribunal examined whether the reassessment was validly initiated under Section 147 of the Income Tax Act, 1961, particularly focusing on whether the conditions for reopening the assessment beyond the normal period were met.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470209 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Other Referred Cases: Hindustan Lever Limited vs R B Wadkar, CIT Vs Foramer France, Wel Intertrade (P) Ltd vs ITO, JSRS Udyog Ltd vs ITO
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR DHANESTA
• Assessee Lawyers: S.K. AGGARWAL
• Keywords: Set aside; Income from undisclosed sources; Bogus purchase; Reason to believe; Bogus
• Section: 147; 148; 143(3); 142(1); 143(2); 143(1); 132; 22; 264

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No. 1926/Del/2023 (Assessment Year: 2013-14) Case New Holland and Construction Equipment (India) Pvt Ltd, Level-4, Rectange-1D4, Boomerang, Chandivali Farm Road, Saket, New Dlehi-110017 Vs. ACIT, Circle-5(2), New Delhi (Appellant) (Respondent) PAN:AAACL4176B Assessee by : Shri S. K. Aggarwal, CA Revenue by: Shri Rajesh Kumar Dhanesta, Sr. DR Date of Hearing 13/01/2025 Date of pronouncement 29/01/2025 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.1926/Del/2023 for AY 2013-14, arises out of the order of the Commissioner of Income Tax (Appeals)-31, New Delhi [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. 1308/22-23 dated 04.05.2023 against the order of assessment passed u/s 143(3) r.w.s 147 of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 02.12.2019 by the Assessing Officer, ACIT, Circle-5(2), New Delhi (hereinafter referred to as „ld. AO‟). 2. Though the assessee has raised several grounds before us, we find that the preliminary issue to be decided first is challenging the validity of assumption of jurisdiction under section 147 of the Act in the facts and ITA No. 1926/Del/2023 Case New Holland and Construction Equipment (India) Pvt Ltd Page | 2 circumstances of the instant case. The assessee has raised Ground Nos. 1 to 5 in this regard. 3. We have heard the rival submissions and perused the materials available on record. The original return of income was filed by the assessee company on 22-11-2013 declaring total income of Rs 32,75,10,840/-. The assessee is engaged in the manufacturing of Backhoe loader and vibratory compactors and trading of earth moving equipment. Pursuant to the original return filed by the assessee on 22-11-2013 for the assessment year 2013-14, the scrutiny assessment was framed under section 143(3) of the Act on 15-3- 2016 accepting the returned income. During the year under consideration, the assessee made sales amounting to Rs. 39,62,000/- to Dinesh Chandra R. Agarwal Infracon Pvt Ltd (DRAIPL). The said sales were duly accounted and offered to tax in the year under consideration. 4. The assessee received a notice under section 148 of the Act dated 31- 03-2019 on 3-04-2019, which was beyond the period of 4 years from the end of the relevant assessment year proposing to re-assess the assessee‟s income for assessment year 2013-14 and requiring it to file return of income. In response to the same, the assessee requested the Learned AO to treat the return of income filed on 22-11-2013 as the return filed in response to subject notice and requested the Learned AO to provide the reasons for initiating re-assessment proceedings. Further, as instructed, the assessee also electronically filed its return of income under section 148 of the Act on 30-4- 2019 without any change in the earlier returned income, just in compliance to the aforementioned proceedings and without prejudice to its contention that the said proceedings are clearly bad in law. On 16-05-2019, the assessee downloaded reasons for re-opening dated 8-05-2019 from the Income Tax Portal and filed objections against reasons for re-opening on 27-05-2019. The Learned AO summarily disposed of the objections vide letter dated 18-10- ITA No. 1926/Del/2023 Case New Holland and Construction Equipment (India) Pvt Ltd Page | 3 2019. Thereafter, notice under section 143(2) and 142(1) of the Act stood issued to the assessee on 29-10-2019 in response to which, the assessee company filed its detailed replies along with supporting documentary evidences vide its submission dated 8-11-2019. Further, the assessee company also filed reply to Show Cause Notice issued dated 19-11-2019 vide its submission dated 25-11-2019. Thereafter, the Learned AO passed the re- assessment order under Section 143(3) read with Section 147 of the Act on 2-12-2019 making an addition amounting to Rs. 18,22,000/- on account of alleged bogus sales transactions and assessing the total income at Rs. 32,93,32,840/-. The Learned NFAC upheld the action of the Learned AO. Aggrieved, the assessee is in appeal before us. 5. The reasons recorded for reopening the assessment are reproduced hereunder:- “Subject: Reason for reopening in the case of CASE CONSTRUCTION EQUIPMENT (INDIA) PRIVATE LIMITED (PAN: AAACL417) NEW HOLLAND 1. The assessee company is involved in manufacturing of special purpose machinery. The assessee company filed its return of income for the relevant year on 22.11 2013 declaring total income at Rs. 32,75,10,840/- and same was processed u/s 143(1) of the IT Act on 03.07.2014. Thereafter assessment proceedings u/s. 143(3) of the I.T Act, 1961 was completed on 15.03.2016 accepting Return income of Rs. 32,75,10,840/-, 2 In this case, the information was received from Asst. Director of Income- Tax (Inv) Unit-2(1), Ahmedabad vide letter no. ACIT/CC2(1)/passing infor./DRA-SRA/2018-19, dated 15.03.2019. On perusal of this information, it is seen that during the year under consideration, the assesse company has booked bogus supply of Rs. 18,22,000/- to DRA group having flagship company Dineshchandra R Agrawal Infracon Pvt. Ltd. 3. During search action u/s. 132 of the income Tax Act, 1961 conducted on 21.10.2016 by ADIT (Inv.)-2(1), Ahmedabad, it is gathered that the company \"Dinesh Chandra R Agrawal Infracon Pvt. Ltd\" involved in providing Engineering, procurement, Construction services in different sectors across Gujarat has generated unaccounted money by way of booking bogus suppliers expenses as well as has booked bogus purchase expenses for materials. The company \"Dinesh Chandra R Agrawal Infracon Pvt. Ltd\" is ITA No. 1926/Del/2023 Case New Holland and Construction Equipment (India) Pvt Ltd Page | 4 involved in tax evasion by way of booking bogus expenses and by inflating expenses to reduce its taxable income through bogus supplier expenses shown in the name of various dummy entities It is seen that the payment to supplier made by Dineshchandra R Agrawal Infracon Pvt. Ltd is found to be suspicious and non-genuine which were done for the intended purposes of booking bogus expenses to avoid payment of due tax on such amount. It is found by the Investigation wing that the group is involved in tax evasion by way of booking bogus expenses and by inflating expenses to reduce its taxable income. The Case New Holland Construction Equipment (India) Pvt. Ltd has entered into transaction during previous year 2012-13 of Rs. 18,22,000/- 4. In view of the above facts and finding of the enquiry conducted by the above mentioned office is clear that the above transaction was used to facilitate/introduction of unaccounted income. Thus, I have reason to believe that income amounting to Rs. 18,22,000/- has escaped assessment in the hands of the assessee company. 5. As the said transaction was unexplained/unaccounted and seems bogus in nature, the assessee company has failed to discharge its duties under the Income Tax Act, 1961 which has resulted in escapement of income chargeable to tax amounting to Rs 18,22,000/- 6. In this case, a return of income was filed on 22.11.2013 for the year under consideration and return was processed u/s 143(1) on 03.07.2014 of the Act. Since, four years from the end of the relevant period has expired in this case, the requirements to initiate proceedings u/s 147 of the Act are reason to believe that income for the year under consideration has escaped assessment because are failure on part of the assessee to disclose fully and truly all material facts necessary for his assessment for the Year under consideration. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration have been recorded above (refer paragraphs 3 to 5). 6.1 In view of the above, the provisions of clause (c) of explanation 2 to section 147 are applicable to the facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. 6.2 In this case, more than four years have lapsed from the end of assessment year under consideration. Hence, necessary sanction to issue notice u/s 148 are sought separately from Principal Commissioner of Income Tax as per the provisions of sections 151 of the Act. ITA No. 1926/Del/2023 Case New Holland and Construction Equipment (India) Pvt Ltd Page | 5 6. On perusal of the aforesaid reasons, we find that the assessee's case was reopened based on an information received from ADIT (Investigation Wing) Unit 2(1), Ahmedabad, pursuant to search proceedings under section 132 of the Act in the premises of one of the assessee's customers‟ DRAIPL. The Learned AO of DRAIPL had held that DRAIPL had evaded tax by way of booking expenses in the nature of its suppliers in order to reduce its taxable income. Since assessee had made sales to DRAIPL, the said sales was sought to be considered as non-genuine and bogus in nature in the hands of the assessee. At the outset, we find that assessee had made merely sales to DRAIPL totaling Rs 39,62,000/- though the lower authorities had alleged only Rs 18,22,000/- sales made to that party as bogus. This goes to prove that the remaining sales made to the very same party is considered and accepted as genuine by the lower authorities. Further, the learned AO in the reasons had absolutely not brought out any failure on the part of the assessee in not furnishing true and full material facts that are relevant for the purpose of assessment in the original assessment proceedings. Admittedly, the original assessment had been completed under section 143(3) of the Act dated 15- 03-2016, which is enclosed in pages 545 to 546 of the paper book. Since the assessment is completed under section 143(3) of the Act on the original return filed by the assessee and the reopening being made herein beyond the period of 4 years from the end of the relevant assessment year, the first proviso to section 147 of the Act need to be satisfied by the learned AO in the reasons recorded itself by clearly bringing on record with cogent evidence that there was indeed a failure on the part of the assessee in not making the full and true disclosure of all material facts that are relevant for the purpose of assessment. In the instant case, on perusal of the reasons that are reproduced herein above, the learned AO had absolutely not even whispered as to how the assessee had failed to discharge its duties under the Income Tax Act. The assessee had in the instant case made sales to DRAIPL ITA No. 1926/Del/2023 Case New Holland and Construction Equipment (India) Pvt Ltd Page | 6 and such sales has already been disclosed by way of credit in the profit and loss account and duly offered to tax in the return of income. Merely because in the course of search of DRAIPL by Ahmedabad Investigation Wing, it revealed that, DRAIPL was involved in booking bogus expenses in order to reduce its taxable income, how the sales made by assessee to DRAIPL could be disturbed more particularly how such information would even enable the assessing officer of the assessee to form a belief that income had escaped assessment. It is pertinent to note that the lower authorities had accepted the remaining sales of Rs 21,40,000/- (3962000 minus 1822000) made to same DRAIPL as genuine. First of all, where is the income which has escaped assessment when assessee itself had already disclosed the said sales as its income. How there could be even formation of belief for the learned AO of the assessee herein? The information received does not provide any tangible or live link for formation of belief for the learned AO of the assessee to reopen the assessment. Hence, we have no hesitation to conclude that the learned AO had not brought on record with any cogent evidence that there was indeed a failure on the part of the assessee in not making full and true disclosure of all material facts that are relevant for the purpose of assessment in the original scrutiny assessment proceedings. Hence, we hold that the first proviso to section 147 of the Act had not been satisfied by the learned AO while assuming jurisdiction for reopening the assessment under Section 147 of the Act, thereby making the assumption of jurisdiction for reopening as void ab initio. The law in this regard is very clear as held by the Hon‟ble Bombay High Court in the case of Hindustan Lever Limited vs R B Wadkar reported in 268 ITR 332 (Bom). The relevant operative portion of the said order is reproduced here under:- “20. The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by ITA No. 1926/Del/2023 Case New Holland and Construction Equipment (India) Pvt Ltd Page | 7 the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self- explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced. 21. Having recorded our finding that the impugned notice itself is beyond the period of four years from the end of the assessment year 1996-97 and does not comply with the requirements of proviso to section 147 of the Act, the Assessing Officer had no jurisdiction to reopen the assessment proceedings which were concluded on the basis of assessment under section 143(3) of the Act. On this short count alone the impugned notice is liable to be quashed and set aside.” 7. Further we find that the Hon‟ble Supreme Court in the case of CIT Vs Foramer France reported in 264 ITR 566 (SC) had also categorically held that if the assessing officer fails to bring on record the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, then the entire reassessment would have to be quashed. Similar views were rendered by the Hon‟ble Jurisdictional High Court in the case of ITA No. 1926/Del/2023 Case New Holland and Construction Equipment (India) Pvt Ltd Page | 8 Wel Intertrade (P) Ltd vs ITO reported in 308 ITR 22 (Del) and in the case of JSRS Udyog Ltd vs ITO reported in 313 ITR 321 (Del). 8. It is very clear that the Learned AO should record the reasons by duly mentioning the failure on the part of the assessee in not making full and true disclosure of all material facts that are relevant in the original assessment proceedings under section 143(3) of the Act in accordance with first proviso to section 147 of the Act. Since the same is not satisfied by the Learned AO in the reasons, respectively following the aforesaid decision, the reassessment proceedings are hereby declared as void ab initio. Hence the reassessment proceedings are hereby quashed. Since the entire reassessment is quashed, the other grounds raised by the assessee on law and also on merits need not be gone into as adjudication of the same would become academic in nature and they are left open. 9. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 29/01/2025. -Sd/- -Sd/- (YOGESH KUMAR U.S.) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29/01/2025 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "