O.J. Securities (P) Ltd, New Delhi V. M/s. ITO, New Delhi

CO 292/DEL/2009

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 2792 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 6 month(s) 19 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 15-03-2017
• Assessment Year: 2001-2002
• Appeal Filed On: 31-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Accommodation entries; Reason to believe; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E , NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO. 3464 /DEL/20 09 A.Y. 200 1 - 02 ITO, WARD 13(4) VS. OJ SECURITIES P LTD. R.NO.219, CR BLDG. 1091 JS PLACE, 320 DELHI GATE BAZAR NEW DELHI ASAF ALI ROAD NEW DELHI PAN: AAACO 0994 L CROSS OBJECTION 292/DEL/09 (IN ITA NO. 3464 /DEL/20 09) A.Y. 200 1 - 02 M/S OJ SECURITIES P LTD. VS. ITO, WARD 13(4) NEW DELHI NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAJESH KUMAR, SR.D.R. RESPONDENT BY : SRI SOMIL AGGARWAL, ADV . ORDER PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGAINST THE ORDER DATED 6.5.2009 OF LD.CIT(A) - XVI , NEW DELHI PERTAINING TO THE ASSESSMENT YEAR (A.Y.) 2001 - 02. THE ASSESSEE HAS FILED CROSS OBJECTION. 2. WE FIRST TAKE UP THE C ROSS O BJECTION FILED BY THE ASSESSEE. T HE GROUNDS OF THE C.O. READ AS UNDER . 2 1 . THAT THE NOTICE ISSUED UNDER SECTION 148 IS ILLEGAL AND VOID AB INITIO AND IS, THEREFORE, LIABLE TO BE QUASHED. 2 . THAT THERE WAS NO 'REASON TO BELIEVE' THAT PETITIONER'S INCOME HAS ESCAPED ASSESSMENT WHICH IS 'MUST' FOR ASSUMING LAWFUL JURISDICTION U/S 147 AND SUCH ABSENCE OF REASON TO BELIEVE IS EVIDENT FROM THE PLAIN READI NG OF THE REASON RECORDED WHICH DOES NOT CONTAIN EVEN THIS BASIC JURISDICTIONAL ELEMENT. 3 . THAT THE REOPENING CAN BE DONE ON THE BASIS OF 'REASON TO BELIEVE' THAT INCOME HAS ESCAPED ASSESSMENT AND RECORDING OF 'REASON' BEFORE THE ISSUE OF NOTICE U/S 148 IS MUST AS PER PROVISION OF SEC. 148 WHICH IN THIS CASE HAS NOT BEEN RECORDED AND THUS BASIC JURISDICTIONAL FACT IS MISSING IN THIS CASE THUS VITIATING THE ISSUE OF VALID NOTICE U/S 148. ALL THAT HAS BEEN RECORDED IN THE GARB OF THE PURPORTED 'REASON' IS T HE PROPOSAL TO THE ADDITIONAL CIT IN TERMS OF SEC.151. WHICH IS DIFFERENT FROM THE 'REASON' RECORDED AS PER THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF VINITA JAIN 212 CTR 45. 4. REOPENING IS BARRED BECAUSE THE ASSESSING OFFICER HAD NOT HIMSE LF FORMED ANY BELIEF AS TO THE ESCAPEMENT OF INCOME BUT HE HAD MERELY ACTED UPON THE DIRECTION OF THE INVESTIGATION WING, NEW DELHI. 5. NOTICE UNDER SECTION 148 IS ILLEGAL BECAUSE THE NOTICE HAS BEEN ISSUED BASED UPON A GENERAL STATEMENT OF ONE PERSON TH AT HE WAS DOING ONLY NAME LENDING. 6. THAT THE ASSESSMENT - ORDER PASSED BY THE ASSESSING OFFICER ON THE BASIS OF VOID NOTICE IS ILLEGAL AND UNJUSTIFIED AND, THEREFORE, SHOULD BE QUASHED. 7. THAT THE ASSESSEE - COMPANY CRAVES LEAVE TO ADD, AMEND, MODIFY OR D ELETE ANY GROUND AT THE TIME OF HEARING. 3. THE LD. COUNSEL FOR THE ASSESSEE FILED A COPY OF THE REASONS RECORDED BY THE AO FOR INITIATING RE ASSESSMENT PROCEEDINGS UNDER SECTION 148 OF THE ACT FOR THE ASSESSMENT YEAR 2001 - 2002 . H E TOOK THIS BENCH THR OUGH THESE REASONS AND SUBMITTED THAT THERE IS TOTAL NON APPLICATION OF MIND BY THE A.O. T O T H E M A T E R I A L B E F O R E R E C O R D I N G T H E R E A S O N S F O R R E - O P E N I N G . HE RELIED UPON THE DECISIONS OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF G&G PHARMA INDIA LTD. VS. ITO AS WELL AS THE DECISION OF DELHI C BENCH OF THE TRIBUNAL IN ITA 3 3407/DEL/13 IN THE CASE OF GS CONTROL VS. ACIT AND ARGUED THAT THE REOPENING OF ASSESSMENT IS BAD IN LAW. O N M E R I T S H E R E L I E D O N T H E O R D E R O F T H E L D . C I T ( A ) . 4 . THE L D.D.R. ON THE OTHER HAND SUBMITTED THAT THE REOPENING IS DONE PURSUANT TO INFORMATION RECEIVED FROM THE DDIT AND THE A O ON BEING SATISFIED THAT T HERE IS PRIMA FACIE ESCAPEMENT OF INCOME , RECORDED REASONS F O R REOPENING OF ASSESSMENT . HE RELIED ON THE FOLLOWING CASE LAWS. I T O V S . P U R U S H O T T A M D A S B A N G U R A N D A N O T H E R ( S C ) 224 ITR 362 M I D L A N D F R U I T A N D V E G E T A B L E P R O D U C T S ( I N D I A ) P V T . L T D . 208 ITR 266 H E P R A Y E D T H A T T H E R E O P E N I N G B E U P H E L D . H E A L S O M A D E S U B M I S S I O N S O N M E R I T S B Y R E L Y I N G O N T H E O R D E R O F T H E A . O . 5 . AFTER HEARING R IVAL SUBMISSION W E F I N D T H E R E A S O N S R E C O R D E D A R E A S F O L L O W S . T H E I N V E S T I G A T I O N W I N G , N E W D E L H I H A S S E N T A D E T A I L E D I N F O R M A T I O N R E G A R D I N G E N T R Y O P E R A T O R S A N D B E N E F I C I A R I E S . T H E L I S T O F B E N E F I C I A R I E S C O N S I S T S O F T H E N A M E O F T H E A B O V E M E N T I O N E D A S S E S S E E . A S P E R I N F O R M A T I O N , T H E A S S E S S E E C O M P A N Y H A S O B T A I N E D A C C O M M O D A T I O N E N T R I E S F R O M T H E F O L L O W I N G P A R T I E S D U R I N G T H E F I N A N C I A L Y E A R 2 0 0 0 - 2 0 0 1 R E L E V A N T T O A . Y . 2 0 0 1 - 0 2 . B E N E F I C I A R Y B A N K N A M E B E N E F I C I A R Y B A N K B R A N C H V A L U E O F E N T R Y T A K E N R S . D A T E O N W H I C H E N T R Y T A K E N N A M E O F A C C O U N T H O L D E R O F E N T R Y G I V I N G A C C O U N T B A N K F R O M W H I C H E N T R Y G I V E N H D F C A S A F A L I R O A D 1 , 0 0 , 0 0 0 1 9 . 3 . 2 0 0 1 G I A N C H A N D J A I N S B P H D F C - D O - 1 , 1 0 , 0 0 0 - D O - S A T I S H K U M A R S B P P S B D A R Y A G A N J 1 , 2 0 , 0 0 0 2 0 . 3 . 2 0 0 1 S H A K U N T L A J A I L A X M I 4 D E V I C O O P B A N K P S B - D O - 2 , 0 0 , 0 0 0 2 4 . 3 . 2 0 0 1 K U L D E E P T E X T I L E S P . L T D . I N N O V A T I V E P S B - D O - 3 , 0 0 , 0 0 0 - D O - D I V I S I O N T R A D I N G P . L T D . - D O - H D F C - 1 , 0 0 , 0 0 0 - 1 9 . 3 . 2 0 0 1 A N I L K U M A R S H A R M A - S B P H D F C - 1 , 0 0 , 0 0 0 - 1 9 . 3 . 2 0 0 1 R A J I V K U M A R A G G A R W A L - S B P S I N C E T H E A S S E S S E E H A S R E C E I V E D E N T R I E S , I H A V E R E A S O N T O B E L I E V E T H A T I N C O M E O F T H E A S S E S S E E T O T H E E X T E N T O F R S . 1 0 , 3 0 , 0 0 0 / - H A S E S C A P E D A S S E S S M E N T F O R W H I C H A C T I O N U / S 1 4 7 O F T H E I . T . A C T I S P R O P O S E D T O B E I N I T I A T E D F O R T H E A . Y . 2 0 0 1 - 0 2 . 6 . T H E J U R I S D I C T I O N H I GH COURT IN THE CASE OF PRINCIPAL CIT VS. G&G PHARMA INDIA LTD. IN ITA 545/2015 VIDE ORDER DT. 8.10.2015 AT PARAS 12 AND 13 IT WAS HELD AS FOLLOWS: 12. IN THE PRESENT CASE, AFTER SETTING OUT FOUR ENTRIES, STATED TO HAVE BEEN RECEIVED BY THE ASSESSEE ON A SINGLE DATE I.E. 10 TH FEB. 2003, FROM FOUR ENTRIES WHICH WERE RECEIVED BY THE ASSESSEE ON A SINGLE DATE I.E. 10 TH FEB., 2003, FROM FOUR E NTRIES WHICH WERE TERMED AS ACCOMMODATION ENTRIES, WHICH INFORMATION WAS GIVEN TO HIM BY THE DIRECTOR 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 ASSESS EE 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 WHI CH THOSE 5 VERY ENTRIES WERE PROVIDED IN THE ACCOUNTS OF THE ASSESSEE, WHICH MUST HAVE BEEN TENDERED ALONG WITH THE RETURN, WHICH WAS FILED ON 14 TH NOVEMBER, 2004 AND WAS PROCESSED U/S 143(3) OF THE ACT. WITHOUT FORMING A PRIMA FACIE OPINION, ON THE BASIS O F 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 DECISION DISCUSSED, 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 I N THE PRESENT CASE. 13. A PERUSAL OF THE REASONS RECORDED DEMONSTRATE TOTAL NON APPLICATION OF MIND BY THE AO. THUS APPLYING THE PROPOSITION LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN G&G PHARMA INDIA (SUPRA) WE HOLD THAT THE REOPENING OF ASSESSMENT IS BAD IN LAW. 6 ( A ) T H E HON BLE DELHI HIGH COURT IN THE CASE OF SIGNATURE HOTELS (P) LTD. VS. ITO AND ANOTHER, REPORTED IN 338 ITR 51 (DELHI) HAS UNDER SIMILAR CIRCUMSTANCES HELD 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 N OTICE 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 UND ER: (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 6 ESCAPED ASSESSMENT. THIS IS MANDATORY AND THE REASON TO BELIEVE ARE REQUIRED TO BE RECORDED I N WRITING BY THE ASSESSING OFFICER. (II) A NOTICE U/S.148 CAN BE QUASHED IF THE BELIEF IS NOT BONA FIDE, 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 REC EIVED 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 AC COMMODATION 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 EV IDENCE 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 AN D 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. 6 (B). IN THE CASE OF CIT VS. ATUL JAIN REPORTED IN 299 ITR 383 IT HAS BEEN HELD AS FOLLOWS . 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 7 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 VAG UE 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 R EPORT 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. 7 . APPLYING THE PROPOSITIONS LAID DOWN IN THE ABOVE CITED JUDGEMENTS TO THE FACTS OF THE CASE, WE HAVE TO NECESSARILY QUASH THE REOPENING O F THE ASSESSMENT AS BAD IN L AW A S I N T H E R E A S O N S R E C O R D E D I T I S A P P A R E N T T H A T T H E A O H A S N O T A P P L I E D H I S M I N D T O T H E I N F O R M A T I O N R E C E I V E D F R O M T H E D D I T . T H E I N F O R M A T I O N I S S I M P L Y E X T R A C T E D A N D A C O N C L U S I O N I S D R A W N T H A T A S T H E A S S E S S E E H A S R E C E I V E D E N T R I E S H I S I N C O M E H A S E S C A P E D A S S E S S M E N T . 7 . 1 . C O M I N G T O T H E J U D G E M E N T S R E L I E D U P O N B Y T H E L D . D . R . , T H E H O N B L E D E L H I H I G H C O U R T H A D C O N S I D E R E D T H E S E D E C I S I O N S A N D H A S A F T E R E X P L A I N I N G T H E S A M E , H E L D T H A T T H E A . O . H A S T O I N D E P E N D E N T L Y A P P L Y H I S M I N D T O T H E M A T E R I A L R E C E I V E D B E F O R E C O M I N G T O A C O N C L U S I O N T H A T I N C O M E E S C A P E D A S S E S S M E N T A N D T H E N O N L Y R E C O R D E D R E A S O N S F O R R E O P E N I N G . 8 . I N V I E W O F T H E A B O V E D I S C U S S I O N , W E R E S P E C T F U L L Y F O L L O W T H E B I N D I N G J U D G E M E N T S O F T H E J U R I S D I C T I O N A L H I G H C O U R T A N D Q U A S H T H E R E O P E N I N G O F A S S E S S M E N T A S B A D I N L A W . 8 9 . E V E N O N M E R I T S , W E F I N D N O I N F I R M I T Y I N T H E O R D E R O F T H E L D . C I T ( A ) W H E R E I N F R O M P A G E 2 9 T O P A G E 3 3 H E H A D D I S C U S S E D T H E F A C T U A L A N D L E G A L I S S U E S . T H E L D . D . R . C O U L D N O T C O N T R O V E R T T H E S E F A C T U A L F I N D I N G S O F T H E L D . C I T ( A ) . H E N C E W E U P H O L D T H E S A M E A N D D I S M I S S T H E A P P E A L O F T H E R E V E N U E . 1 0 . IN THE RESULT ASSESSEE S C.O. IS ALLOWED AND REVENUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 0 T H MARCH, 2017. S D / - S D / - (SUCHITRA KAMBLE) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 2 0 T H MARCH, 2017 . MANGA COPY FORWARDED TO: - 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR