M/s. Dhanuka Agritech Ltd., New Delhi V. ACIT, New Delhi

ITA 1003/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7945 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 25-04-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 20-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N J SINGH
• Assessee Lawyers: HI RESH MEHTA
• Keywords: Period of limitation; Accommodation entries; Time period of passing order; Reason to believe; Reassessment proceedings
• Section: 143(3); 115JB; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC-1, NEW DELHI BEFORE SH. N. K. SAINI, AM ITA NO. 1003/DEL./2014 : ASSTT. YEAR : 2003-04 DHANUKA AGRITECH LTD. (FORMERLY KNOWN AS DHANUKA PESTICIDES LTD.), 861-862 DHANUKA HOUSE, JOSHI ROAD, KAROL BAGH NEW DELHI VS ACIT CIRCLE -10(1) NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAACD0105G APPELLANT BY : SH. HI RESH MEHTA, CA RESPONDENT BY : SH. N.J.SIN GH, SR. DR DATE OF HEARING : 25.04.2016 DATE OF PRONOUNCEMENT : 11.05.2016 ORDER PER N.K. SAINI, A.M. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 25/11/2013 OF THE C.I.T.(A)-XVII, NEW DELHI. FOLLOW ING GROUNDS HAS BEEN RAISED IN THIS APPEAL : ITA NO.1003/DEL/2014 DHANUKA AGRITECH LTD. 2 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY LD. CIT(A)-XVII, NEW DELHI (HEREINAFTER REFERRED TO AS CIT(A)) IS BAD IN LAW . 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT REASSE SSMENT PROCEEDINGS ARE VALID EVEN THOUGH THE NOTICE OF RE- OPENING WAS NOT SUPPLIED WITHIN 6 YEARS TIME LIMIT AS PROVI DED IN SECTION 149 OF THE INCOME TAX ACT, 1961. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE REASSESSMENT PROCEEDINGS WAS NOT ILLEGAL AND VOID-A B-INITIO EVEN THOUGH THERE WAS ABSENCE OF REASONS TO BELIEVE THAT THERE WAS ESCAPEMENT OF INCOME AND MOREOVER THE CAS E OF THE ASSESSEE FALLS IN FIRST PROVISO TO SECTION 147 OF THE INCOME-TAX ACT. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ADDIT ION OF RS. 11,00,000/- UNDER SCTION 68 AS UNEXPLAINED CRED IT IN RESPECT OF LOANS TAKEN FROM FOLLOWING PARTIES. A) SHASHTRI EINCAPVEST (P) LTD. RS. 5,00,000/- B) ABN ALUMINIMUM INDUSTRIES RS. 2,00,000/- C) NATRAJ COMMUNICATIONS (P) LTD. RS. 4,00,000/- 5. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AME ND OR MODIFY ANY GROUND AT THE TIME OF HEARING OR EARLIER . 2. GROUND NOS. 1 AND 5 ARE GENERAL IN NATURE AND GROUND NO. 2 WAS NOT PRESSED SO THESE GROUNDS DO NOT REQUI RE ANY ADJUDICATION ON OUR PART. GROUND NO. 3 IS LEGAL GR OUND WHICH IS RELATED TO THE VALIDITY OF THE REASSESSMEN T PROCEEDINGS U/S 147 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). ITA NO.1003/DEL/2014 DHANUKA AGRITECH LTD. 3 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSES SEE FILED ITS RETURN OF INCOME AFTER SETTING OFF THE BROUGHT FORW ARD LOSSES OF RS. 80,29,450/- AGAINST THE GROSS TOTAL INCOME, ON 27.11.2014. HOWEVER, THE TAX WAS PAID ON THE BOOK P ROFIT U/S 115JB OF THE ACT AT RS. 8,136/-. THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE ACT AT THE SAME FIG URE. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY AND TH E ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT BY MAKI NG AN ADDITION OF RS. 2,45,669/- ON ACCOUNT OF DEFERRED R EVENUE EXPENDITURE, AND THE INCOME WAS ASSESSED AT RS. 1,0 8,481/- U/S 115JB OF THE ACT. SUBSEQUENTLY, ON THE APPEAL O F THE ASSESSEE, THE ADDITION MADE BY THE AO WAS DELETED BY THE LD. CIT(A) AND THE ITAT. THE AO REOPENED THE ASSESS MENT U/S 147 OF THE ACT BY ISSUING NOTICE U/S 148 OF THE ACT BUT THE ASSESSEE DID NOT FILE THE RETURN OF INCOME IN C OMPLIANCE TO THE SAID NOTICE U/S 148 OF THE ACT WITHIN THE ST IPULATED TIME AND ASKED THE COPY OF REASONS RECORDED FOR RE- OPENING THE ASSESSMENT. THE AO OBSERVED THAT IN THIS CASE, A ITA NO.1003/DEL/2014 DHANUKA AGRITECH LTD. 4 SPECIFIC INFORMATION WAS RECEIVED FROM THE INVESTIG ATION WING AND THAT THE AO HAD REASON TO BELIEVE THAT THE ASSESSEE HAD RECEIVED AMOUNTS THROUGH CHEQUES / PAY ORDERS TOTALLING TO RS. 11,00,000/- I.E. 5 LACS FROM M/S. SHASTRI EINCAPVEST PVT. LTD. ON 13.6.2002, RS. 2 LACS FROM M/S. ABN ALUMINIMUM INDUSTRIES ON 04.09.2002 AND RS. 4 LAC FROM M/S. NATRAJ COMMUNICATIONS PVT. LTD. ON 05.0 9.2002 WHICH ARE ENTRY OPERATOR AND INDULGED IN RECEIVING ACCOMMODATION ENTRIES. THE AO MADE THE ADDITION OF RS. 11,00,000/-. 4. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND CHALLENGED THE VALIDITY OF THE RE-OPENIN G DONE BY THE A.O. BY ISSUING THE NOTICE U/S 148 OF THE AC T. THE LD. CIT(A) DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND HELD THAT THE AO HAD REASONS TO BELIEVE THAT IN COME HAD ESCAPED THE ASSESSMENT AND HE WAS WITHIN HIS COMPET ENCE WHILE INVOKING THE POWERS CONTAINED IN SECTION 147 OF THE ITA NO.1003/DEL/2014 DHANUKA AGRITECH LTD. 5 ACT. HE ALSO OBSERVED THAT THERE WAS NO PROVISION I N SECTION 148 OF THE ACT THAT REASONS FOR RE-OPENING SHOULD A LSO BE GIVEN WITHIN THE LIMITATION PERIOD. NOW THE ASSESSE E IS IN APPEAL. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE EARLIER ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT BY THE AO WHO MADE THE INQUIRIES RELATING TO THE LOANS RAI SED AND FRAMED THE ASSESSMENT AFTER APPLYING HIS MIND. HE A LSO DREW OUR ATTENTION TOWARDS PAGE NO. 8 OF THE ASSESS EES PAPER BOOK WHICH IS THE COPY OF THE REASONS RECORDE D AND SUBMITTED THAT THE AO ALLEGED IN THE REASONS RECORD ED THAT THE PERSONS FROM WHOM THE AMOUNT WAS RECEIVED WERE ENTRY OPERATOR WHO PROVIDED THE ENTRY TO THE ASSESSEE AFT ER RECEIVING THE AMOUNT IN CASH. IT WAS CONTENDED THAT THE AO DID NOT APPLY HIS OWN MIND AND ACTED ON THE INFORMA TION OF OTHER PERSONS AND IT WAS NOT BROUGHT ON RECORD, THA T THE PERSONS FROM WHOM LOANS WERE RECEIVED WERE THE ENTR Y ITA NO.1003/DEL/2014 DHANUKA AGRITECH LTD. 6 OPERATOR AND NO REPORT OF THE INVESTIGATION WAS CON FRONTED TO THE ASSESSEE, THEREFORE, THE ASSESSMENT RE-OPENE D UNDER PRESUMPTION BY THE A.O. WAS NOT TENABLE. THE RELIA NCE WAS PLACED ON THE ORDER DATED 8.10.2015 OF THE HONBLE JURISDICTIONAL HIGH COURT IN ITA NO. 545/2015 IN TH E CASE OF PRINCIPAL COMMISSIONER OF INCOME-TAX VS. G & G PHAR MA INDIA LTD. COPY OF THE SAID ORDER WAS FURNISHED WHI CH IS PLACED AT PAGE NO. 88 TO 95 OF THE ASSESSEES PAPER BOOK. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE REPAID THE LOANS IN THE YEAR UNDER CONSIDERATION ITSELF AND GENUINENESS OF THOSE LOANS WERE NOT DOUBTED WHILE FRAMING THE ASSESSMENT U/S 143(3) OF THE ACT. 6. IN HIS RIVAL SUBMISSIONS, THE LD. DR SUPPORTE D THE ORDERS OF THE AUTHORITIES BELOW AND FURTHER SUBMITT ED THAT THE AO RECEIVED THE SPECIFIC INFORMATION FROM THE INVESTIGATION WING, ON THE BASIS OF WHICH THE ASSES SMENT WAS REOPENED, THEREFORE, THE LD. CIT(A) RIGHTLY UPH ELD THE ITA NO.1003/DEL/2014 DHANUKA AGRITECH LTD. 7 ACTION OF THE AO FOR REOPENING THE ASSESSMENT U/S 1 47 OF THE ACT. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH TH E PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE O N THE RECORD, TO RESOLVE THE PRESENT CONTROVERSY, IT IS N ECESSARY TO SEE THE REASONS RECORDED BY THE AO FOR REOPENING TH E ASSESSMENT U/S 147 OF THE ACT. IN THE PRESENT CASE, THE AO RECORDED THE REASONS ON 30.3.2010 COPY OF WHICH IS PLACED AT PAGE NO. 8 OF THE ASSESSEES PAPER BOOK AND READ AS UNDER : 30.03.2010- IN THIS CASE IT WAS GATHERED THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAS RECEIVED FOLLOWING AMOUNT FROM VARIOUS PERSONS AS PER DETAIL BELOW ON VARIOUS DATE S IN VARIOUS FORMS. IT HAS COME TO THE KNOWLEDGE OF UNDERSIGNED THAT THE PERSONS FROM WHOM THE AMOUNT WAS RECEIVED ARE ENTRY OPERATOR AND HAVE PROVIDED THE ENTRIES TO THE ASSESSEE AFTER RECEIVING THE AMOUNT IN CASH FROM THE ASSESSEE. THE ASSESSEE IS A TYPE OF BENEFICIARY AND HAS INTRODUCED THE UNACCOUNTED MONE Y IN THE BOOKS OF ACCOUNTS BY WAY OF OBTAINING THE ENTRY FROM THE ENTRY OPERATOR ARE AS UNDER : S L. N O . NAME OF THE ASSESSEE/BENEFI CIARY BENEFICIARY BANK NAME VALUE OF ENTRY TAKEN DATE OF THE ENTRY NAME OF THE OPERATOR OPERATORS BANK OPERA TORS ACCOU NT NO. 1 DHANUKA PESTICIDES LTD. SBBJ, FAIZ ROAD 5,00,000 12.06.2002 SHRASTRI FINCAPVEST PVT. LTD. JAILAXMI COOP BANK FATEHP URI 3027 ITA NO.1003/DEL/2014 DHANUKA AGRITECH LTD. 8 2 DHANUKA PESTICIDES LTD. SBP 2,00,000 04.09.2002 ABN ALUMINIUM INDUSTRIES JAILAXMI COOP BANK FATEHP URI 3033 3 DHANUKA PESTICIDES LTD. SBP ROAD 4,00,000 05.09.2002 NATRAJ COMMUNICATI ON (P) LTD. JAILAXMI COOP BANK FATEHP URI 21165 THEREFORE, I HAVE REASONS TO BELIEVE THAT AN INCOME OF RS. 11,00,000/- FOR THE F.Y. 2002-03 RELEVANT TO A.Y. 2 003-04 HAS ESCAPED ASSESSMENT. ISSUED NOTICE U/S 148 OF THE IT ACT. 8. FROM THE ABOVE REASONS RECORDED BY AO, IT IS CRYSTAL CLEAR THAT THE AO RE-OPENED THE ASSESSMENT ON THE B ASIS OF INFORMATION OF OTHER PERSONS BECAUSE HE HIMSELF ADM ITTED THAT IT CAME TO HIS KNOWLEDGE THAT THE PERSONS FROM WHOM THE AMOUNT WAS RECEIVED WERE ENTRY OPERATOR AND HAVE PR OVIDED ENTRIES TO THE ASSESSEE, AFTER RECEIVING AMOUNT IN CASH FROM THE ASSESSEE. HOWEVER, NOTHING WAS BROUGHT ON RECOR D THAT THE ASSESSEE PAID CASH TO THE PERSONS FROM WHOM THE LO ANS WERE TAKEN AND THESE WERE ENTRY OPERATOR. IT IS ALSO NOT ICED THAT THE ASSESSEE REPAID THE LOANS IN THE YEAR ITSELF WHICH IS EVIDENT FROM SCHEDULE D ATTACHED TO THE BALANCE SHEET IN RE SPECT OF UNSECURED LOANS AS MENTIONED IN THE SUBMISSIONS OF THE ASSESSEE PLACED AT PAGE NO. 75 OF THE ASSESSEES PA PER BOOK ITA NO.1003/DEL/2014 DHANUKA AGRITECH LTD. 9 WHEREIN IT HAS BEEN CLARIFIED THAT SHORT TERM INTER -CORPORATE LOANS OUTSTANDING AS ON 31.3.2003 WERE AT RS. 2,04, 04,010/- WHEREAS AT THE END OF IMMEDIATELY PRECEDING YEARS, THOSE WERE AT RS. 7,02,89,764/-. AS SUCH THERE WAS A REDU CTION IN THE LOANS. THE CONTENTION OF THE LD. COUNSEL FOR T HE ASSESSEE THAT THE LOANS WERE REPAID IN THE SAME YEAR WAS ALS O NOT REBUTTED. 9. ON A SIMILAR ISSUE, THEIR LORDSHIPS OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME-TAX VS. G. & G. PHARMA INDI A LTD. (SUPRA) OBSERVED IN PARA 12 & 13 OF THE ORDER DATED 8 TH OCTOBER, 2015 AS UNDER : 12. IN THE PRESENT CASE, AFTER SETTING OFF FOUR E NTRIES, STATED TO HAVE BEEN RECEIVED BY THE ASSESSEE ON A S INGLE DATE I.E. 10 TH FEBRUARY, 2003 FROM FOUR ENTITIES WHICH WERE TERMED AS ACCOMMODATION ENTRIES, WHICH INFORMATION WAS GIVEN TO HIM BY THE DIRECTORATE OF INVESTIGATION, T HE AO STATED: I HAVE ALSO PERUSED VARIOUS MATERIALS AND REPORT FROM INVESTIGATION WING AND ON THAT BASIS IT IS EVI DENT THAT THE ASSESSEE COMPANY HAS INTRODUCED ITS OWN UNACCOU NTED MONEY IN ITS BANK ACCOUNT BY WAY OF ABOVE ACCOMMODA TION ENTRIES.THE ABOVE CONCLUSION IS UNHELPFUL IN UNDER STANDING WHETHER THE AO APPLIED HIS MIND TO THE MATERIALS TH AT HE TALKS ABOUT PARTICULARLY SINCE HE DID NOT DESCRIBE WHAT THOSE ITA NO.1003/DEL/2014 DHANUKA AGRITECH LTD. 10 MATERIALS WERE. ONCE THE DATE ON WHICH THE SO CALLE D ACCOMMODATION ENTRIES WERE PROVIDED IS KNOWN, IT WO ULD NOT HAVE BEEN DIFFICULT FOR THE AO, IF HE HAD IN FACT U NDERTAKEN 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 14 TH NOVEMBER, 2004 AND WAS PROCESSED UNDER SECTION 143(3) OF THE ACT. WITHOUT FORMING A PRIMA FACIE OPINION, ON THE BASIS OF SUCH MATERIA L, IT WAS NOT POSSIBLE FOR THE AO TO HAVE SIMPLY CONCLUDED: IT IS EVIDENT THAT THE ASSESSEE COMPANY HAS INTRODUCED IT S OWN UNACCOUNTED MONEY IN ITS BANK BY WAY OF ACCOMMODATI ON ENTRIES. IN THE CONSIDERED VIEW OF THE COURT, IN L IGHT OF THE LAW EXPLAINED WITH SUFFICIENT CLARITY BY THE SUPREM E COURT IN THE DECISIONS DISCUSSED HEREINBEFORE, THE BASIC REQ UIREMENT THAT THE AO MUST APPLY HIS MIND TO THE MATERIALS IN ORDER TO HAVE REASONS TO BELIEVE THAT THE INCOME OF THE ASSE SSEE ESCAPED ASSESSMENT IS MISSING IN THE PRESENT CASE. 13. MR. SAWHNEY TOOK THE COURT THROUGH THE ORDER O F THE CIT(A) TO SHOW HOW THE CIT(A) DISCUSSED THE MATERIA LS PRODUCED DURING THE HEARING OF THE APPEAL. THE COUR T WOULD LIKE TO OBSERVE THAT THIS IS IN THE NATURE OF A POS T MORTEM EXERCISE AFTER THE EVENT OF REOPENING OF THE ASSESS MENT HAS TAKEN PLACE. WHILE THE CIT MAY HAVE PROCEEDED ON TH E BASIS THAT THE REOPENING OF THE ASSESSMENT WAS VALID, THI S DOES NOT SATISFY THE REQUIREMENT OF LAW THAT PRIOR TO THE RE OPENING OF THE ASSESSMENT, THE AO HAS TO, APPLYING HIS MIND TO THE MATERIALS, CONCLUDE THAT HE HAS REASON TO BELIEVE T HAT INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. UNLE SS THAT BASIC JURISDICTIONAL REQUIREMENT IS SATISFIED A POS T MORTEM EXERCISE OF ANALYZING MATERIALS PRODUCED SUBSEQUENT TO THE REOPENING WILL NOT RESCUE AN INHERENTLY DEFECTIVE R EOPENING ORDER FROM INVALIDITY. 10. IN THE PRESENT CASE ALSO THE AO IN THE REASON S RECORDED MENTIONED THAT IT HAD COME TO HIS KNOWLEDGE THAT TH E ITA NO.1003/DEL/2014 DHANUKA AGRITECH LTD. 11 PERSONS FROM WHOM AMOUNT WAS RECEIVED WERE ENTRY OPERATOR AND PROVIDED THE ENTRIES TO THE ASSESSEE A FTER RECEIVING THE AMOUNT IN CASH, HOWEVER, NOTHING WAS BROUGHT ON RECORD THAT HOW AND IN WHAT MANNER THE PERSONS F ROM WHOM THE ASSESSEE RECEIVED THE LOANS WERE ENTRY OPE RATOR AND THAT AS TO HOW THE CASH WAS PAID BY THE ASSESSE E. IN FACT THE AFORESAID CONCLUSION OF THE A.O. IS UNHELPFUL I N UNDERSTANDING AS TO WHETHER THE AO APPLIED HIS MIND TO THE MATERIAL, PARTICULARLY WHEN HE DID NOT DESCRIBE HOW AND WHAT MANNER IT CAME TO HIS KNOWLEDGE THAT THE ASSES SEE RECEIVE THE ACCOMMODATION ENTRIES. WE, THEREFORE, B Y KEEPING IN VIEW THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE AFORESAID REFERRED TO CASE OF PRINCIPAL COMMISSIONER OF INCOME-TAX VS. G & G PHAR MA INDIA LTD., ARE OF THE VIEW THAT THE REOPENING DON E BY THE AO U/S 147 OF THE ACT WAS NOT VALID AND ACCORDINGLY THE SUBSEQUENT ASSESSMENT FRAMED BY THE AO WAS VOID-AB- INITIO AND THEREFORE THE SAME IS QUASHED. SINCE, WE HAVE Q UASHED ITA NO.1003/DEL/2014 DHANUKA AGRITECH LTD. 12 THE REASSESSMENT ORDER OF THE A.O., THEREFORE NO FI NDINGS ARE GIVEN ON THE GROUND NO. 4 RAISED BY THE ASSESSEE. 7. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D. (ORDER PRONOUNCED IN THE COURT ON 11/05/2016). SD/- (N. K. SAINI) ACCOUNTA NT MEMBER DATED: 11/ 05/2016 *B.RUKHAIYAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITA NO.1003/DEL/2014 DHANUKA AGRITECH LTD. 13 DATE INITIAL 1. DRAFT DICTATED ON 04.05.2016 2. DRAFT PLACE D BEFORE AUTHOR 04.05.2016 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.