M/s. Priya Financial Services Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 1115/DEL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 6798 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 20-10-2010
• Assessment Year: 1998-1999
• Appeal Filed On: 12-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Keywords: Accommodation entries; Reason to believe
• Section: 142(1); 143(1); 147; 148; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `F : NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A.NO.1115/DEL/2010 ASSESSMENT YEAR : 1998-99 M/S. PRIYA FINANCIAL SERVICES PVT. LTD., INCOME- TAX OFFICER, J-8, MILAP MARKET, BERIWALA BAGH, VS. WARD 14(4), NEW DELHI. SUBHASH NAGAR, NEW DELHI. PAN: AAACP5467F I.T.A.NO.739/DEL/2010 ASSESSMENT YEAR : 1998-99 INCOME-TAX OFFICER, M/S. PRIYA FINANCIAL SERVICES PVT. LTD., WARD 14(4), NEW DELHI. VS. J-8, MILAP MARKET, BER IWALA BAGH, SUBHASH NAGAR, NEW DELHI. (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI R .S. SINGHVI, AR. DEPARTMENT BY : SHRI H.K . LAL, DR. O R D E R PER C.L. SETHI, JUDICIAL MEMBER. THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AS WE LL BY THE REVENUE, AGAINST THE ORDER DATED 21.12.2009 PASSED BY THE LE ARNED COMMISSIONER OF INCOME-TAX (APPEALS) IN THE MATTER OF AN ASSESSMENT MADE BY THE ASSESSING OFFICER UNDER SEC. 147/144 OF THE INCOME-TAX ACT, 1 961 (THE ACT), PERTAINING TO THE ASSESSMENT YEAR 1998-99. 2 2. IN THE APPEAL FILED BY THE ASSESSEE, THE ASSESSE E HAS TAKEN LEGAL GROUND CHALLENGING THE VALIDITY OF ASSESSING OFFICERS ACT ION IN INITIATING PROCEEDINGS UNDER SEC. 147 OF THE ACT. SINCE THIS ISSUE GOES TO THE ROOT OF THE MATER, WE FIRST DECIDE THE APPEAL FILED BY THE ASSESSEE. 3. IN THIS CASE, THE ASSESSEE FILED ITS RETURN OF I NCOME ON 30.11.1998 DECLARING TOTAL INCOME AT `NIL. THEREAFTER, THIS RETURN WAS PROCESSED UNDER SEC. 143(1) OF THE INCOME-TAX ACT, 1961. SUBSEQUEN TLY, A NOTICE UNDER SEC. 148 OF THE ACT WAS ISSUED BY THE AO ON 31.03.2005 R EQUIRING THE ASSESSEE TO FILE A RETURN IN RESPONSE TO THIS NOTICE WITHIN 30 DAYS. NO RETURN OF INCOME WAS FILED BY THE ASSESSEE IN RESPONSE TO NOTICE UND ER SEC. 148 OF THE ACT. THE AO THEN ISSUED QUESTIONNAIRE TO THE ASSESSEE AL ONG WITH NOTICE UNDER SEC 142(1) OF THE ACT. ULTIMATELY THE AO COMPLETED THE ASSESSMENT UNDER SEC. 144 OF THE ACT VIDE ORDER DATED 30.12.2005 DET ERMINING TOTAL INCOME QT RS.22,36,510/-. 4. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFOR E THE LEARNED CIT(A). BEFORE THE LEARNED CIT(A) THE ASSESSEE HAS TAKEN A GROUND CHALLENGING THE VALIDITY OF NOTICE ISSUED UNDER SEC. 148 OF THE ACT AS WELL THE VALIDITY OF PROCEEDINGS INITIATED BY THE AO UNDER SEC. 147 OF T HE ACT. THIS GROUND HAS BEEN REJECTED BY THE LEARNED CIT(A) BY HOLDING THAT IN THE LIGHT OF SPECIFIC INFORMATION RECEIVED FROM INVESTIGATION WING VIDE T HEIR LETTER DATED 3 28.03.2005, IT WAS CLEAR THAT THE ASSESSEE HAD RECE IVED CERTAIN ACCOMMODATION ENTRIES FROM M/S. N.C. BANSAL & OTHER S AND THE AO HAS THEREFORE, REOPENED THE ASSESSMENT ON THE BASIS OF SPECIFIC INFORMATION RECEIVED FROM THE INVESTIGATION WING OF THE DEPARTM ENT. THE LEARNED CIT(A) HAS TAKEN A VIEW THAT THE AO HAS COMPLETED A LL THE FORMALITIES FOR REOPENING OF THE ASSESSMENT UNDER SEC. 147 OF THE A CT AND VALIDLY ISSUED NOTICE UNDER SEC. 148 OF THE ACT WITHIN THE LIMITAT ION PERIOD. 5. BEING AGGRIEVED WITH THE CIT(A)S ORDER IN UPHOL DING THE VALIDITY OF PROCEEDINGS INITIATED UNDER SEC. 147 OF THE ACT, TH E ASSESSEE HAS RAISED THIS GROUND BEFORE US. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN THIS CASE, THE REASONS RECORDED BY THE AO FOR INITIATING PROCEEDINGS UNDER SEC. 147 OF THE ACT AS SET OUT IN ANNEXURE-A OF THE FORM FOR RECORDING THE REASONS FOR INITIATING PROCEEDINGS UNDER SEC. 148 AND FOR OBTAINING THE AP PROVAL OF THE CIT, ARE AS UNDER:- THE COMPANY M/S. PRIYA FINANCIAL SERVICES (P) LTD. , HAS BEEN GIVEN ACCOMMODATION ENTRIES TO THE TUNE OF RS. 300000/- AND THUS THE AMOUNT OF RS.300000/- HAS ESCAPED ASSE SSMENT. 7. IN THIS CASE, THE SHORT QUESTION THAT EMERGES FO R OUR CONSIDERATION IS WHETHER, IN THE CASE AT HAND, THE INITIATION OF PRO CEEDINGS UNDER SEC. 147 IS 4 JUSTIFIED IN LAW OR NOT. IN THIS CONNECTION, A REF ERENCE MAY BE MADE TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF AC IT VS. RAJESH JHAVERI STOCK BROKERS P. LTD. (2007) 291 ITR 500 (SC), WHER E THE SCOPE AND OBJECT OF SEC. 147 HAS BEEN CONSIDERED AND ANALYZED BY THE HONBLE SUPREME COURT. FROM THIS DECISION, IT IS SEEN THAT SEC. 14 7 AUTHORIZES AND PERMITS THE ASSESSING OFFICER TO ASSESS OR REASSESS INCOME CHAR GEABLE TO TAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YE AR HAS ESCAPED ASSESSMENT. THE WORD REASON IN THE PHRASE REASON TO BELIEVE WOULD MEAN CAUSE OR JUSTIFICATION. IF THE ASSESSING OFFIC ER HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAD ES CAPED ASSESSMENT, IT CAN BE SAID TO HAVE REASON TO BELIEVE THAT AN INCOME HA D ESCAPED ASSESSMENT. AT THE STAGE OF ISSUING NOTICE UNDER SEC. 148 OF THE A CT, WHAT IS REQUIRED, IS REASON TO BELIEVE, BUT NOT THE ESTABLISHED FACT O F ESCAPEMENT OF INCOME. AT THIS STAGE, THE ONLY QUESTION TO BE CONSIDERED I S WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COUL D HAVE FORMED A REQUISITE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT . THERE MUST BE A PRIMA FACIE BELIEF, WHICH MUST BE ARRIVED AT BY THE AO TH AT INCOME HAS ESCAPED ASSESSMENT AND THERE MUST BE SOME RELEVANT AND COGE NT MATERIAL BEFORE THE AO TO ARRIVE AT SUCH A BELIEF. IN OTHER WORDS, IT IS CLEAR THAT THE FORMATION OF BELIEF IS A CONDITION PRECEDENT AS REGARD THE ESCAP EMENT OF TAX PERTAINING TO 5 THE ASSESSMENT YEAR BY THE AO. THE AO IS REQUIRED TO FORM AN OPINION BEFORE HE PROCEEDS TO ISSUE A NOTICE AND THE OPINIO N FORMED BY THE AO MUST BE BASED ON RELEVANT AND COGENT MATERIAL. 8. IT IS ALSO WELL SETTLED THAT THE REASONS FOR REO PENING OF ASSESSMENT ARE REQUIRED TO BE RECORDED BY THE AO BEFORE ISSUING AN Y NOTICE UNDER SEC. 148 OF THE ACT. THE ONLY MATERIAL TO BE LOOKED INTO FO R DETERMINING THE VALIDITY OF THE INITIATION OF PROCEEDINGS UNDER SEC. 147 OF THE ACT IS THE MATERIAL OR INFORMATION ON THE BASIS OF WHICH THE AO HAS FORMED A REQUISITE BELIEF. THE AO CANNOT RELY ON ANY OTHER MATERIAL APART FROM THE REASONS RECORDED BY HIM. THE REASONS ARE REQUIRED TO BE READ AS THEY W ERE RECORDED BY THE AO. NO SUBSTITUTION OR DELETION IS PERMISSIBLE. NO ADD ITIONS CAN BE MADE TO THOSE REASONS. NO INFERENCE CAN BE ALLOWED TO BE D RAWN BASED ON REASONS NOT RECORDED. IT IS FOR THE AO TO DISCLOSE AND OPE N HIS MIND THROUGH REASONS RECORDED BY HIM. HE HAS TO SPEAK THROUGH HIS REASO NS. IT IS FOR THE AO 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 UN AMBIGUOUS AND SHOULD NOT SUFFER FROM ANY VAGUENESS. THE REASONS RECORDE D MUST DISCLOSE HIS MIND. REASONS RECORDED ARE THE MANIFESTATION OF MI ND OF THE AO. THE REASONS RECORDED SHOULD BE SELF-EXPLANATORY AND SHO ULD NOT KEEP THE ASSESSEE GUESSING FOR REASONS. REASONS PROVIDE THE LINK BETWEEN CONCLUSION 6 AND EVIDENCE. THE REASONS RECORDED MUST BE BASED O N EVIDENCE. THE AO, IN THE EVENT OF CHALLENGE TO THE REASONS, MUST BE ABLE TO JUSTIFY THE SAME BASED ON MATERIAL AVAILABLE ON RECORD. THE VITAL LINK BE TWEEN THE REASON AND EVIDENCE IS THE SAFEGUARD AGAINST THE ARBITRARY REO PENING OF THE CONCLUDED ASSESSMENT. THE REASONS RECORDED BY THE AO CANNOT BE SUPPLEMENTED BY FILING AN AFFIDAVIT OR MAKING AN ORAL SUBMISSION, O THERWISE, THE REASONS WHICH WERE LACKING IN THE MATERIAL PARTICULARS WOUL D GET SUPPLEMENTED, BY THE TIME THE MATTER REACHES TO THE COURT, ON THE ST RENGTH OF AFFIDAVIT OR ORAL SUBMISSIONS ADVANCED. THESE PROPOSITION HAVE BEEN LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN LEVER LTD. VS. R.B. WADKAR (2004) 268 ITR 332 (BOM.). 9. THE FACTUAL MATRIX OF THE PRESENT CASE HAS TO BE DECIDED ON THE ANVIL OF THE AFORESAID PROPOSITION OF LAW AS DISCUSSED ABOVE . IN THE CASE AT HAND, AS IS SEEN FROM THE REASONS RECORDED BY THE AO, THE AO HAS MERELY STATED THAT THE ASSESSEE COMPANY HAS BEEN GIVEN ACCOMMODATION E NTRIES TO THE TUNE OF RS.3,00,000/- AND THUS THE AMOUNT OF RS.3,00,000/- HAS ESCAPED ASSESSMENT. IN THE REASONS RECORDED, IT IS NOWHERE MENTIONED AS TO WHO HAS GIVEN ACCOMMODATION ENTRIES TO THE TUNE OF RS.3,00,000/-. WHAT IS THE DATE, ON WHICH THE ACCOMMODATION ENTRY WAS GIVEN, IS ALSO NO T MENTIONED. THE SOURCE OF THIS INFORMATION IS ALSO NOT MENTIONED IN THE REASONS RECORDED. 7 THE INFORMATION ARE THUS VAGUE AND UNCERTAIN AND CA NNOT BE CONSTRUED TO BE SUFFICIENT AND RELEVANT MATERIAL ON WHICH A REASONA BLE PERSON COULD HAVE FORM A BELIEF THAT THE INCOME TO THE TUNE OF RS.3,0 0,000/- HAS ESCAPED ASSESSMENT. THE REASONS RECORDED ARE TOTALLY VAGUE , SCANTY AND AMBIGUOUS. THEY ARE NOT CLEAR AND UNAMBIGUOUS BUT SUFFER FROM VAGUENESS. HERE THE REASONS RECORDED BY THE AO DO NOT DISCLOSE HIS MIND AS TO WHAT IS THE SOURCE OF INFORMATION AND AS TO WHEN AND IN WHAT WAY THE A CCOMMODATION ENTRY WAS GIVEN TO THE TUNE OF RS.3,00,000/- TO THE ASSES SEE. AT THIS STAGE, WE WOULD MAKE A USEFUL REFERENCE TO THE DECISION OF HO NBLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF CIT VS. ATUL JAIN ( 2000) 299 ITR 383 (DELHI), IN WHICH CASE THE INFORMATION RELIED UPON BY THE AO FOR INITIATING PROCEEDINGS UNDER SEC. 147 OF THE ACT DID NOT INDIC ATE THE SOURCE OF THE CAPITAL GAIN AND NOBODY KNEW WHICH SHARES WERE TRAN SACTED AND WITH WHOM THE TRANSACTION HAS TAKEN PLACE AND IN THAT CASE TH ERE WERE ABSOLUTELY NO DETAILS AVAILABLE AND THE INFORMATION SUPPLIED WAS EXTREMELY SCANTY AND VAGUE AND IN THAT LIGHT OF THOSE FACTS, THE HONBLE JURISDICTIONAL DELHI HIGH COURT HELD THAT INITIATION OF PROCEEDINGS UNDER SEC . 147 OF THE ACT BY THE AO WAS NOT VALID AND JUSTIFIED IN THE EYES OF LAW. SI MILAR IS THE POSITION WITH THE PRESENT CASE WHERE THE REASONS RECORDED BY THE AO DID NOT INDICATE THE SOURCE OF THE ACCOMMODATION ENTRY AND NOBODY KNEW W HEN THIS 8 ACCOMMODATION ENTRY WAS TRANSACTED AND WITH WHOM TH E TRANSACTION WAS TAKEN PLACE AND ABSOLUTELY NO DETAILS OF ACCOMMODAT ION ENTRY ARE AVAILABLE IN THE REASONS RECORDED AND SOURCE OF INFORMATION H AS NOT BEEN MENTIONED. THEREFORE, THIS DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ATUL JAIN (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. AS ALREADY OBSERVED ABOVE, IT IS WELL SETTLED THAT ONL Y THE REASONS RECORDED BY THE AO FOR INITIATING PROCEEDINGS UNDER SEC. 147 OF THE ACT, ARE TO BE LOOKED AT OR EXAMINED FOR SUSTAINING OR SETTING ASIDE A NO TICE ISSUED UNDER SEC. 148 OF THE ACT. THE REASONS ARE REQUIRED TO BE READ AS THEY WERE RECORDED BY THE AO. NO SUBSTITUTION OR DELETION IS PERMISSIBLE. N O ADDITION CAN BE MADE TO THOSE REASONS. THEREFORE, THE CIT(A)S RELIANCE UP ON THE INFORMATION FROM INVESTIGATION WING VIDE THEIR LETTER DATED 28.03.20 05 WHILE SUSTAINING THE VALIDITY OF THE PROCEEDINGS INITIATED UNDER SEC. 14 7 OF THE ACT BY THE AO IS TOTALLY UNWARRANTED INASMUCH AS THE INFORMATION VID E LETTER DATED 28.03.2005 HAS NOT BEEN FORMED OR MADE A PART OF REASONS RECOR DED BY THE AO. THEREFORE, THIS INFORMATION CANNOT BE MADE A BASIS TO UPHOLD THE VALIDITY OF PROCEEDINGS INITIATED UNDER SEC. 147 OF THE ACT BY THE AO. 10. IN THE LIGHT OF THE DISCUSSION MADE ABOVE, WE T HEREFORE HOLD THAT THE INITIATION OF PROCEEDINGS UNDER SEC. 147 OF THE ACT BY THE ASSESSING OFFICER AND ISSUANCE OF NOTICE UNDER SEC. 148 OF THE ACT AR E NOT VALID AND JUSTIFIED IN 9 THE EYES OF LAW. THEY ARE RESULTANTLY QUASHED. TH US, GROUND NO.1 CHALLENGING THE VALIDITY OF NOTICE UNDER SEC. 148 O F THE ACT AS WELL PROCEEDINGS INITIATED UNDER SEC. 147 OF THE ACT BY THE AO, RAISED BY THE ASSESSEE IS ALLOWED, IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 11. SINCE THE ASSESSMENT SO MADE BY THE ASSESSING O FFICER UNDER SEC 147 OF THE ACT IS CANCELLED/QUASHED BY US ON THE GROUND OF ITS VALIDITY, THE OTHER GROUNDS RAISED BY THE ASSESSEE AS TO THE VARIOUS AD DITIONS CONFIRMED BY THE CIT(A) HAVE BECOME REDUNDANT AND NEED NO ADJUDICATI ON AT THIS STAGE. 12. SIMILARLY, IN THE LIGHT OF OUR DECISION ON GROU ND NO.1 RAISED BY THE ASSESSEE IN ASSESSEES APPEAL, THE GROUND RAISED BY THE REVENUE AGAINST THE CIT(A)S ORDER IN DELETING THE ADDITION OF RS.15,80 ,000/- OUT OF TOTAL ADDITION OF RS.19,35,000/- HAS BECOME REDUNDANT AND NEED NO ADJUDICATION AT OUR END AT THIS STAGE. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED AS INFRUCTUOUS. 14. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 16 TH NOVEMBER, 2010. SD/- SD/- (SHAMIM YAHYA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 16 TH NOVEMBER, 2010. 10 ITA NOS.1115 & 739/DEL/2010 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.