M/s James Capital & Finance Pvt. Ltd., New Delhi V. ITO, New Delhi

CO 64/DEL/2010

• Counselvise Citation: [2016] 119 COUNSELVISE.COM (IT) 3218 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 1 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 10-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 02-05-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 26-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR RAKESH GUPTA
• Assessee Lawyers: P DAM KANUNJNA
• Keywords: Gift; Question of law; Tangible material; Validity of assessment; Accommodation entries; Reason to believe
• Section: 143(3); 142(1); 147; 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI J.S. REDDY, ACCOUNTANT MEMBER ITA NO. 278/DEL/2010 ASSESSMENT YEAR: 2003-04 ITO, CO. WARD 4(1), VS. M/S JAMES CAPITAL & FI NANCE PVT. LTD. ROOM NO. 418, CR BUILDING, S-375, GREATER KAILASH- II, I.P. ESTATE, NEW DELHI NEW DELHI 110 048 (PAN: AAACJ1639H) (APPELLANT) (RESPONDENT) AND CROSS OBJECTION NO. 64/DEL/2010 (IN ITA NO. 278/DEL/2010) ASSESSMENT YEAR: 2003-04 M/S JAMES CAPITAL & FINANCE INCOME TAX OFFICER, PVT. LTD., VS. CO. WARD 4(1), C/O RR TAXINDIA, NEW DELHI D-28, SOUTH EXTENSION, PART-I, NEW DELHI 49 (PAN: AAACJ1639H) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. P. DAMKANUNJNA, SR. DR RESPONDENT BY : DR. RAKESH GUPTA, ADV. & S H. SOMIL AGARWAL, ADV. DATE OF HEARING : 02-05-2016 DATE OF ORDER : 10-05-2016 ORDER PER H.S. SIDHU, J.M. THE DEPARTMENT HAS FILED THE APPEAL AND ASSESSEE H AS FILED THE CROSS OBJECTION WHICH IS EMANATE FROM THE ORDER ITA NO.278/DEL./2010 CO NO. 64/DEL/2010 2 DATED 23.11.2009 OF THE LD. CIT(A)-VII, NEW DELHI P ERTAINING TO ASSESSMENT YEAR 2003-04. THE GROUNDS RAISED IN THE REVENUES APPEAL READS AS UNDER:- 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND CONTRARY TO FACTS AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING TH E ADDITION OF RS. 1,40,00,00/- MADE BY THE AO U/S. 68 OF THE I.T. ACT BEING THE BOGUS CASH CREDIT AND RS. 36,000/- BEING THE CASH PAID AS COMMISSION FOR OBTAINING ACCOMMODATION ENTRIES. 2.1 THE LD. CIT(A) IGNORED THE FACT THAT THE ASSESS EE DID NOT DISCHARGE THE ONUS OF PROVING THE CREDITWORTHINESS OF THE CREDITORS AND GENUINENESS O F THE TRANSACTIONS. 3. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 2. THE GROUNDS RAISED BY THE ASSESSEE IN THE CROSS OBJECTION READS AS UNDER:- 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTA NCES OF THE CASE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N CONFIRMING THE ACTION OF AO IN PASSING THE IMPUGNE D ASSESSMENT ORDER WITHOUT COMPLYING WITH THE MANDATORY CONDITIONS AS PRESCRIBED UNDER SECTION 147 TO 153 OF THE INCOME TAX ACT, 1961 AND ITA NO.278/DEL./2010 CO NO. 64/DEL/2010 3 REOPENING OF THE CASE IS BAD IN LAW AND BEYOND THE JURISDICTION OF THE AO. 2. THAT THE CROSS OBJECTOR CRAVES THE LEAVE TO ADD , AMEND, MODIFY, DELETE ANY OF THE GROUND(S) OF CROSS OBJECTION BEFORE OR AT THE TIME OF HEARING. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF INCOME DECLARING A NIL INCOME WAS FILED ON 20.12.2003. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY U/S. 148. N OTICE UNDER SECTION 148 OF THE INCOME TAX ACT, 1961 DATED 25.1. 2007 WAS SERVED ON THE ASSESSEE I.E. WITHIN THE STATUTORY T IME PERIOD PRESCRIBED. THE CASE WAS REOPENED BECAUSE OF THE I NFORMATION RECEIVED FROM THE INVESTIGATION WING OF DELHI THAT THE ASSESSEE IS INDULGING IN RECEIVING THE ACCOMMODATION ENTRIES FROM THE ENTRY OPERATORS AFTER PAYING ITS UNACCOUNTED CASH. THE NOTICE U/S. 142(1) WAS SERVED FIXING THE CASE FOR 12.3.200 7. NONE ATTENDED. ANOTHER NOTICE U/S. 142(1) FIXING THE CA SE FOR 24.9.2007 ALONGWITH QUESTIONNAIRE WAS SENT TO THE A SSESSEE. THEN LD. AR OF THE ASSESSEE ATTENDED ON 7.11.2007 O N BEHALF OF THE ASSESSEE, CASE WAS ADJOURNED TO 20.11.2007. ON 26.11.2007, THE AR ATTENDED, HE WAS ASKED TO FILE T HE DETAILS OF THE SHARE APPLICANTS AND TO PRODUCE THE PRINCIPAL O FFICERS OF THESE COMPANIES. NONE ATTENDED, HOWEVER A REPLY DAT ED 28.11.2007 WAS RECEIVED THROUGH POST CONTAINING SOM E OF THE ITA NO.278/DEL./2010 CO NO. 64/DEL/2010 4 DETAILS CALLED FOR. THEREAFTER, THE AO HELD THAT I T IS PROVED BEYOND DOUBT THAT THE ASSESSEE HAS FAILED TO DISCHA RGE THE INITIAL ONUS CAST UPON HIM IN ACCORDANCE WITH THE P ROVISIONS OF SECTION 68 OF THE I.T. ACT. ACCORDINGLY, MONEY REC EIVED ON ACCOUNT OF SHARE APPLICATION AND COMMISSION WERE TR EATED AS UNDISCLOSED INCOME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY COMPLETING THE ASSESSMENT AT RS. 1,40,36,000/- U/S. 147/143(3) OF THE ACT VIDE O RDER DATED 24.12.2007. 4. AGAINST THE ORDER OF THE LD. AO, ASSESSEE APPEA LED BEFORE THE LD. CIT(A), CHALLENGING THE VALIDITY OF ASSESSMENT AS WELL AS THE ADDITIONS IN DISPUTE WHO VIDE IMPUGN ED ORDER DATED 23.11.2009 HAS PARTLY ALLOWED THE APPEAL OF T HE ASSESSEE AND DELETED THE ADDITION IN DISPUTE. 5. AGGRIEVED WITH THE AFORESAID ORDER OF THE LD. CIT(A), REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST T HE DELETION OF ADDITIONS AND ASSESSEE HAS FILED THE CROSS OBJECTIO N CHALLENGING THE LEGAL ISSUE OF REOPENING OF ASSESSM ENT. 6. NOW WE FIRST DEAL WITH THE ASSESSEES CROSS OBJE CTION AND ADJUDICATE UPON THE LEGAL ISSUE OF REOPENING OF ASS ESSMENT. ITA NO.278/DEL./2010 CO NO. 64/DEL/2010 5 7. AT THE TIME OF HEARING, LD. COUNSEL OF THE ASSES SEE HAS ONLY ARGUED THE LEGAL GROUND CHALLENGING THE VALIDI TY OF REOPENING U/S. 147 OF THE I.T. ACT BY STATING THAT ACTION OF THE ASSESSING OFFICER IS ILLEGAL, BECAUSE NO PROPER REA SONS WERE RECORDED; NO NEXUS BETWEEN THE MATERIALS RELIED UPO N AND THE BELIEF FORMED FOR ESCAPEMENT OF INCOME; NO APPLICAT ION OF MIND; NO PROPER SATISFACTION WAS RECORDED BEFORE ISSUE OF NOTICE U/S. 148 AND NO INDEPENDENT CONCLUSION THAT THERE WAS E SCAPEMENT OF INCOME AND NO PROPER SATISFACTION. HE FURTHER D RAW OUR ATTENTION TOWARDS THE NOTICE U/S. 148 AND OBJECTION S FILED BY THE ASSESSEE ON WHICH THE LD. CIT(A) HAS NOT COMMENTED UPON. LASTLY, HE SUBMITTED THAT THE PRESENT CASE IS SQUA RELY COVERED BY THE HONBLE JURISDICTIONAL HIGH COURT DECISION D ATED 08.10.2015 PASSED IN ITA NO. 545/2015 IN THE CASE O F PR. CIT-4 VS. G&G PHARMA INDIA LTD., WHEREIN THE TRIBUNALS DECISION DATED 09.1.2015 HAS BEEN UPHELD IN WHICH THE JUDICI AL MEMBER IS PARTY. IN THIS BEHALF, HE FILED THE COPY OF THE ORDER DATED 08.10.2015 OF THE HONBLE HIGH COURT OF DELHI IN PR . CIT VS. G&G PHARMA INDIA LTD (SUPRA) AS WELL AS TRIBUNALS ORDER DATED 9.1.2015. THEREFORE, HE REQUESTED THAT BY FOLLOWIN G THE DECISION IN THE CASE OF PR. CIT VS. G&G PHARMA IND IA LTD., (SUPRA) THE LEGAL ISSUE RAISED BY THE ASSESSEE IN T HE PRESENT ITA NO.278/DEL./2010 CO NO. 64/DEL/2010 6 CROSS OBJECTION MAY BE ALLOWED AND ACCORDINGLY, THE APPEAL FILED BY THE REVENUE MAY BE DISMISSED. 8. ON THE CONTRARY, LD. DR RELIED UPON THE ORDER PA SSED BY THE AO AND STATED THAT NOTICE U/S. 148 HAS BEEN ISS UED, AFTER APPLYING THE MIND BY THE AO. HE FURTHER STATED THA T THE NOTICE HAS BEEN ISSUED TO THE ASSESSEE ON THE BASIS OF TH E MATERIAL FOUND AGAINST THE ASSESSEE AND THEREFORE, THE AO HA S RIGHTLY MADE THE ADDITION IN DISPUTE AND LD. CIT(A) HAS WR ONGLY DELETED THE SAME. HE REQUESTED THAT THE APPEAL F ILED BY THE DEPARTMENT MAY BE ACCEPTED AND THE CROSS OBJECTION FILED BY THE ASSESSSEE MAY BE DISMISSED. 9. 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 MU CH NECESSARY TO REPRODUCE THE REASONS RECORDED BY THE AO BEFORE ISS UE OF NOTICE DATED 25.1.2007 U/S. 148 FOR REOPENING OF AS SESSMENT WHICH READS AS UNDER:- REASONS RECORDED IN WRITING FOR REOPENING THE CASE U/S. 149 M/S JAMES ITA NO.278/DEL./2010 CO NO. 64/DEL/2010 7 CAPITAL & FINANCE PRIVATE LIMITED (AY 2003- 04) INFORMATION HAS BEEN RECEIVED FROM THE INVESTIGATION WING OF INCOME TAX DEPARTMENT, NEW DE LHI REGARDING BENEFICIARIES AND OPERATORS OF ACCOMMODAT ION ENTRIES IN DELHI. IN THE SAID INFORMATION, IT HAS BEEN INTER ALIA REPORTED AS UNDER:- ENTRIES ARE BROADLY TAKEN FOR TWO PURPOSES. 1. TO PLOUGH BACK UNACCOUNTED BLACK MONEY FOR THE PURPOSE OF BUSINESS OR FOR PERSONAL NEEDS SUCH AS PURCHASE OF ASSETS ETC., IN THE FORM OF GIFTS, SHAR E APPLICATION MONEY, LOANS ETC. 2. TO INFLATE EXPENSES IN THE TRADING AND PROFIT AND LOSS ACCOUNT SO AS TO REDUCE THE REAL PROFITS AND THEREBY PAY LESS TAXES. THE SPECIFIC INFORMATION PROVIDED BY THE INVESTIGATION WING OF INCOME TAX DEPARTMENT, NEW DELHI IS ENCLOSED AS PER ANNEXURE. ITA NO.278/DEL./2010 CO NO. 64/DEL/2010 8 IN VIEW OF THE SPECIFIC INFORMATION RECEIVED AS ABOVE FROM INVESTIGATION WING OF INCOME TAX DEPARTMENT, NEW DELHI, I HAVE SUFFICIENT REASON TO BELIEVE THAT THE ASSESSEE COMPANY M/S JAMES CAPITAL & FINANCE PRIVATE LIMITED HAS INDULGED IN RECEIVING ACCOMMODATION ENTRIES AND THE TOTAL AMOUNT OF PAYMENT RECEIVED BY THE ASSESSEE COMPANY AMOUNTING TO RS. 15,00,000/- IS BOGUS AND REPRESENTS THE UNDISCLOSED INCOME / INCOME FROM OTHER SOURCES IN ITS RETURN FILED. ACCORDINGLY, I HAVE REASON TO BELIEVE THAT INCOME OF RS. 15,00,000/- HAS ESCAPED ASSESSMENT AS THE ASSESSEE COMPANY HAS UNDERSTATED ITS RETURNED INCOME FOR THE AY 2003- 04 BY AN AMOUNT OF RS. 15,00,000/-. SD/- (KULDEEP SHARMA) INCOME TAX OFFICER, WARD 4(1), NEW DELHI 9.1 AFTER GOING THROUGH THE REASONS RECORDED BY THE ASSESSING OFFICER/ITO-4(2), NEW DELHI, WE ARE OF THE VIEW TH AT AO HAS ITA NO.278/DEL./2010 CO NO. 64/DEL/2010 9 NOT APPLIED HIS MIND SO AS TO COME TO AN INDEPENDEN T CONCLUSION THAT HE HAS REASON TO BELIEVE THAT INCOM E HAS ESCAPED DURING THE YEAR. IN OUR VIEW THE REASONS AR E VAGUE AND ARE NOT BASED ON ANY TANGIBLE MATERIAL AS WELL AS A RE NOT ACCEPTABLE IN THE EYES OF LAW. THE AO HAS MECHANIC ALLY ISSUED NOTICE U/S. 148 OF THE ACT, ON THE BASIS OF INFORMA TION 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 T HE CONSIDERED VIEW THAT THE REOPENING IN THE CASE OF THE ASSESSEE FOR THE ASSTT. YEAR IN DISPUTE IS BAD IN LAW AND DESERVES T O BE QUASHED. OUR VIEW IS SUPPORTED BY THE FOLLOWING JUDGMENT/DEC ISION:- PR. CIT VS. G&G PHARMA INDIA LTD. IN ITA NO. 545/2015 DATED 8.10.2015 OF THE DELHI HIGH COURT WHEREIN THE HONBLE 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 ITA NO.278/DEL./2010 CO NO. 64/DEL/2010 10 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 ITA NO.278/DEL./2010 CO NO. 64/DEL/2010 11 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 ITA NO.278/DEL./2010 CO NO. 64/DEL/2010 12 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. 10. IN VIEW OF ABOVE, WE ARE OF THE CONSIDERED VIE W THAT THE ABOVE ISSUE IS EXACTLY THE SIMILAR AND IDENTICAL TO THE ISSUE INVOLVED IN THE PRESENT APPEAL AND IS SQUARELY COVE RED BY THE AFORESAID DECISION OF THE HONBLE HIGH COURT OF DEL HI. HENCE, RESPECTFULLY FOLLOWING THE ABOVE PRECEDENTS, WE DEC IDE THE LEGAL ISSUE IN DISPUTE IN FAVOR OF THE ASSESSEE BEING REO PENING BAD IN LAW AND BEYOND THE JURISDICTION. THEREFORE, WE QUAS H THE ORDERS ITA NO.278/DEL./2010 CO NO. 64/DEL/2010 13 OF THE AUTHORITIES BELOW AND ALLOW THE CROSS OBJECT ION FILED BY THE ASSESSEE. REVENUES APPEAL 11. SINCE WE HAVE QUASHED THE ORDERS OF THE AUTHOR ITIES BELOW ON THE LEGAL ISSUE ITSELF, HENCE, THE ISSUES RAISED BY THE REVENUE IN ITS APPEAL HAVE BECOME INFRUCTUOUS, THER EFORE, THE SAME ARE DISMISSED AS SUCH. 12. IN THE RESULT, THE ASSESSEES CROSS OBJECTION STANDS ALLOWED AND REVENUES APPEAL STAND DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 10-05-2016. SD/- SD/- (J.S. REDDY) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 10-05-2016 SR BHATANGAR COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A), NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.