G.S. Control, New Delhi V. ACIT, New Delhi

ITA 3407/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7794 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-03-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 29-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Assessee Lawyers: DR RAM SAMUJH
• Keywords: Reopening of assessment; Principle of natural justice; Opportunity of cross examination; Accommodation entries; Reason to believe
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : C NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY, ACCOUN TANT MEMBER ITA NO: 3407/DEL/2013 AY : - 2003-04 G.S. CONTROL VS. ACIT F-3/8A, KRISHNA NAGAR CIRC LE-12 (1) NEW DELHI 110 051 NEW DELHI. PAN AACCG0368G (APPELLANT) (RESPONDENT) APPELLANT BY : DR. RAM SAMUJH, ADVOCATE RESPONDENT BY : SHRI T. VASANTHAN, SR.DR DATE OF HEARING : 14.03.2016 DATE OF PRONOUNCEMENT : O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) V, NEW DELHI D ATED 24.9.2013 FOR THE ASSESSMENT YEAR 2003-04 ON THE FOLLOWING GROUNDS :- 1. THAT THE LD. CIT (A) ERRED IN LAW AND FACTS BY UPH OLDING THE VALIDITY OF REOPENING OF ASSESSMENT AND THE ISSUANCE OF NOTICE U/S 148 OF THE I.T. ACT, 1961, THOUGH SAID NOTICE WAS MERELY AND EXCLUS IVELY ON THE DIRECTION OF INVESTIGATION WING OF THE IT DEPARTMENT WITHOUT RECODING OWN SATISFACTION BY THE LD. AO 2. THAT THE LD. CIT(A) ERRED IN LAW AND IN FACTS IN NO T APPRECIATING THE LEGAL POSITION, SINCE THE REOPENING OF THE ASSESSMENT AND ISSUANCE OF NOTICE U/S 148 WAS NOT VALID, THE ORDER PASSED IN RESPONSE TO SAID NOTICE WAS BAD IN LAW AND WAS LIABLE TO BE ANNULLED. ITA NO. 3407/DEL/2013 G.S. CONTROL VS. ACIT 2 20X5 2. FACTS IN BRIEF :- THE ASSESSEE DERIVES ITS INCOM E IN THE FORM OF COMMISSION FROM ALL KINDS OF ELECTRICAL GOODS. IT FILED ITS RE TURN OF INCOME ON 2.12.2003 DECLARING INCOME OF RS. 36,950/-. THE CASE WAS PROCESSED U/S 143 (1). LATER ON AS INFORMATION WAS RECEIVED FROM THE INVESTIGATION WING, THE ASSES SMENT WAS REOPENED U/S 147 OF THE INCOME TAX ACT 1961 (THE ACT) BY ISSUANCE OF NO TICE U/S 148 OF THE ACT. THE AO COMPLETED THE ASSESSMENT AND DETERMINED THE TOTAL I NCOME AT RS. 21,61,950/-, INTERALIA MAKING AN ADDITION OF RS. 21,25,000/- U/S 68 OF THE INCOME TAX ACT. 3. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APP EAL. THE FIRST APPELLATE AUTHORITY CONFIRMED THE ORDER OF THE AO. 4. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD DR. RAM SAMUJH, LD. COUNSEL FOR TH E ASSESSEE AND SHRI T VASANTHAN, SR. DR ON BEHALF OF THE REVENUE. DR. RA M SAMUJH CHALLENGED THE REOPENING OF ASSESSMENT AND SUBMITTED THAT THE REOP ENING IS BAD IN LAW FOR THE FOLLOWING REASONS :- A) THE AO ISSUED THE NOTICE U/S 148 REOPENING OF ASSE SSMENT BASED ON INFORMATION RECEIVED FROM THE INVESTIGATION WING OF THE DEPARTMENT WITHOUT APPLICATION OF MIND. B) THAT THE ISSUANCE OF NOTICE U/S 148 ON THE DIRECTIO N OF THE INVESTIGATION WING, WITHOUT CARRYING OUT INDEPENDENT INQUIRY IS B AD IN LAW. C) THAT THE ASSESSEE OBJECTED TO THE REOPENING AND ASK ED FOR THE COPY OF THE STATEMENT RECORDED BY THE INVESTIGATION WING, INQUI RY REPORT AS WELL AS ITA NO. 3407/DEL/2013 G.S. CONTROL VS. ACIT 3 20X5 THE LIST OF ENTRY OPERATORS PROVIDED BY THE INVESTI GATION WING TO THE AO AND THAT NO MATERIAL WAS GIVEN TO THE ASSESSEE IN R ESPONSE TO SUCH REPORT. D) NO OPPORTUNITY OF CROSS EXAMINATION OF WITNESSES OF THE REVENUE WAS PROVIDED TO THE ASSESSEE. E) NON PRODUCTION OF THE DIRECTORS OF THE COMPANY WHIC H HAVE MADE APPLICATION FOR INVESTMENT IN SHARE CAPITAL COMPANY OF THE ASSESSEE COMPANY, BEFORE THE AO, CANNOT BE A REASON FOR CONF IRMING THE ADDITION, AS SUCH DIRECTORS ARE NOT IN CONTROL OF THE ASSESSE E COMPANY F) THAT THE OBSERVATION OF THE LD. CIT(A) THAT THE ASS ESSEE HAS NOT COMPLIED WITH THE NOTICES IS NOT FACTUALLY CORRECT AND THAT LD. AO PASSED THE ORDER WITHIN 10 DAYS FROM THE DATE OF ISSUANCE OF NOTICE, WITHOUT MENTIONING THE DATE OF SERVICE OF NOTICE AND THIS WAS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. 6. ON MERITS OF THE ADDITION OF RS. 16,25,0 00/-, THE LD. COUNSEL OF THE ASSESSEE MADE DETAILED SUBMISSIONS, WHICH WE WOULD BE REFERRING TO, AS AND WHEN REQUIRED. 7. LD. DR SHRI VASANTHAN ON THE OTHER HAND RELIED O N THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE REOPENING IS VALID. HE RELIE D ON THE PROPOSITION OF LAW LAID DOWN IN THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. M/S. NAVODAYA CASTLES PVT. LTD. 367 ITR 306 AND SUBMITTE D THAT THIS DECISION WAS UPHELD BY THE SUPREME COURT. HE ALSO RELIED ON THE CASE RE PORTED IN 56 TAXMANN.COM 18 (SC) (2015). HE POINTED OUT THAT THE TRIBUNAL, IN THE ASSESSEES OWN CASE, FOR THE ITA NO. 3407/DEL/2013 G.S. CONTROL VS. ACIT 4 20X5 ASSTT. YEAR 2006-07, IN ITA NO. 1520/DEL/2010, HAS UPHELD THE ORDER OF THE LD. CIT(A), WHICH WAS IN FAVOUR OF THE ASSESSEE AND SUB MITTED THAT THE FACTS IN THE PRESENT CASE ARE DIFFERENT AND HENCE THE ISSUE IS N OT COVERED BY THIS ORDER OF THE ITAT. HE RELIED ON THE JUDGMENTS OF THE HONBLE SU PREME COURT IN THE CASE OF M/S. DEEPAK AGRO FOODS VS. STATE OF RAJASTHAN & ORS. 20 08-TIOL-134-SC-CT IN CIVIL APPEAL NO. 4327-28 OF 2008 AND 4329 OF 2008 JUDGMEN T DATED 11 TH JULY, 2008 AND SUBMITTED THAT THERE IS A DISTINCTION BETWEEN ORDER S WHICH ARE NULL AND VOID AND ORDERS WHICH ARE ILLEGAL. HE SUBMITTED THAT WHEN AN AUTHORITY MAKES AN ORDER WITHOUT HAVING ANY INHERENT JURISDICTION, THE ORDER S ARE NULL AND VOID, NON EST OR VOID AB INITIO. HE FURTHER SUBMITTED THAT WHEN THE AUTHO RITY HAS INHERENT JURISDICTION BUT EXERCISES OF JURISDICTION IS IN A WRONGFUL MANNER, IT WOULD RESULT IN THE ILLEGALITY BEING CAPABLE OF BEING CURED IN A DULY CONSTITUTED LEGAL PROCEEDINGS AND THAT THE ORDER CANNOT RESULT IN NULLITY. HE ALSO RELIED ON THE DEC ISION OF HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. EMPIRE BUILTECH PVT. LTD. ON MERITS HE RELIED ON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE HAS NOT DISCHARGED THE ONUS THAT LAY OUT. 8. AFTER HEARING RIVAL CONTENTIONS WE HOLD AS F OLLOWS. 9. REASONS BASED ON WHICH THE REOPENING OF ASSE SSMENT WAS DONE ARE AT PAGE 28 OF THE PAPER BOOK. THESE ARE REPRODUCED FOR YOUR READY REFERENCE :- ASSESSEE HAS FILED RETURN OF INCOME DECLARING AN I NCOME OF RS. 36950/- ON 2.12.2003. THE RETURN WAS PROCESSED U/S 143(1) ON 2 2.1.2004. AN INFORMATION REGARDING ENTRY OPERATORS AND THEIR BENEFICIARIES WAS RECEIVED FROM DIT(INV)-1, NEW DELHI VIDE D. NO. 1399 DATED 2 .3.2006 AND NO. DIT(INV.) 1/2006-07AE/1536 DATED 5.2.2007 THAT TH E ASSESSEE COMPANY IS ONE OF THE BENEFICIARIES AND TOOK ENTRY FROM THE EN TRY OPERATOR AS DETAILED BELOW :- ITA NO. 3407/DEL/2013 G.S. CONTROL VS. ACIT 5 20X5 ASSESS EE BANK A/C VALUE OF ENTRY TAKEN INSTRUMENT NO. BY WHICH ENTRY TAKEN DATE ON WHICH ENTRY TAKEN NAME OF ACCOUNT HOLDER OF ENTRY GIVING ACCOUNT BANK A/C FROM WHICH ENTRY GIVEN 44899 1,000,000 24864 13-MAR-2003 PERFORMANCE TRADING & INV. P. LTD. STATE BANK OF BIKANER & JAIPUR 44900 500,000 6583 27-MAR-2003 RAHUL FINLEASE P. LTD. STATE BANK OF BIKANER & JAIPUR 18123 SB 150000 4795 27-DEC-2002 GEETA VERMA DENA BANK 18059 SB 225000 751481 27-DEC-2002 DIVESH KUMAR DENA BANK 10273 250000 163108 31-DEC-2002 RAJEEV KUMAR AGARWAL BOR AS A RESULT OF ABOVE, I AM CONVINCED THAT ASSESSEE HAS EVADED INCOME CHARGEABLE TO TAX AND HAS NOT DECLARED PROPER SOURC E OF INCOME OR EXPENDITURE FOR WHICH ACCOMMODATION HAS BEEN TAKEN AS REFERRED TO A BOVE. THE ASSESSMENT FOR A.Y. 2003-04 WAS NOT MADE. THE RETURN HAS ONLY BEEN PROC ESSED U/S 143(1) AND NO ACTION U/S 143(3) HAS BEEN TAKEN IN THIS CASE. AS A RESULT OF ABOVE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. HENCE A N OTICE U/S 147 READ WITH SECTION 148 FOR REOPENING FOR ASSESSMENT IS REQUIRED TO BE SENT IN THIS CASE. IN THE RESULT REOPENING IS BAD IN LAW. 10. WE HAVE PERUSED THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF M/S. DEEPAK AGRO FOODS VS. STATE OF RAJASTHAN & OR S. (SUPRA). IN THE CASE ON HAND, THE AO DOES NOT ACQUIRE JURISDICTION OVER THE CASE, UNLESS A VALID NOTICE U/S 148 IS ISSUED AND SERVED AFTER FOLLOWING THE PROCED URE LAID DOWN IN THE ACT FOR REOPENING OF ASSESSMENT. WHEN THE ACTION OF REOPENI NG ASSESSMENT IS HELD TO BE ITA NO. 3407/DEL/2013 G.S. CONTROL VS. ACIT 6 20X5 BAD IN LAW FOR ANY REASON, THEN THE AO DOES NOT ACQ UIRE JURISDICTION. UNDER THE CIRCUMSTANCES AN ORDER PASSED WITHOUT JURISDICTION WOULD BE NULL AND VOID ORDER. 11. WE NOW CONSIDER THE ARGUMENT OF THE ASSESSEE T HAT THE AO HAD SIMPLY RELIED ON THE INFORMATION RECEIVED FROM THE INVESTIGATION WING AND HAS NOT APPLIED HIS MIND WHILE RECORDING REASONS THAT INCOME SUBJECT TO TAX HAS ESCAPED ASSESSMENT. 12. IN THE DECISION OF THE JURISDICTIONAL HIGH COUR T IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VS. G&G PHARMA INDIA LTD . IN ITA NO. 545/2015 VIDE ORDER DT. 8.10.2015 AT PARAS 12 AND 13 IT WAS HEL D 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 F EBRUARY 2003, FROM FOUR ENTITIES WHICH WERE TERMED AS ACCOMMODATION ENTRIES, WHICH I NFORMATION WAS GIVEN TO HIM BY THE DIRECTORATE 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 ASSESSEE COMPANY HAS, INTRODUCED ITS OWN UNACCOUNTE D MONEY IN ITS BANK ACCOUNT BY WAY OF ABOVE ACCOMMODATION ENTRIES. THE ABOVE C ONCLUSION IS UNHELPFUL IN UNDERSTANDING WHETHER THE AO APPLIED HIS MIND TO TH E MATERIALS THAT HE TALKS ABOUT PARTICULARLY SINCE HE DID NOT DESCRIBE WHAT THOSE M ATERIALS WERE. ONCE THE DATE ON WHICH THE SO CALLED ACCOMMODATION ENTRIES WERE PROV IDED IS KNOWN, IT WOULD 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 ALON G WITH THE RETURN, WHICH WAS FILED ON 14TH NOVEMBER 2004 AND WAS PROCESSED UNDER SECTION 143(3) OF THE ACT. WITHOUT FORMING A P R I M A F A C I E OPINION, ON THE BASIS OF 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 T HE COURT, IN LIGHT OF THE LAW EXPLAINED WITH SUFFICIENT CLARITY BY THE SUPREME CO URT IN THE DECISIONS DISCUSSED HEREINBEFORE, THE BASIC REQUIREMENT THAT THE AO MUS T 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. MR. SAWHNEY TOOK THE COURT THROUGH THE ORDER OF THE CIT(A) TO SHOW HOW THE CIT (A) DISCUSSED THE MATERIALS PRODUCED DURING THE HEA RING 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 PLAC E. WHILE THE CIT MAY HAVE ITA NO. 3407/DEL/2013 G.S. CONTROL VS. ACIT 7 20X5 PROCEEDED ON THE BASIS THAT THE REOPENING OF THE AS SESSMENT WAS VALID, THIS DOES NOT SATISFY THE REQUIREMENT OF LAW THAT PRIOR TO TH E REOPENING OF THE ASSESSMENT, THE AO HAS TO, APPLYING HIS MIND TO THE MATERIALS, CONC LUDE THAT HE HAS REASON TO BELIEVE THAT INCOME OF THE ASSESSEE HAS ESCAPED ASS ESSMENT. UNLESS THAT BASIC JURISDICTIONAL REQUIREMENT IS SATISFIED A POST MORT EM EXERCISE OF ANALYSING MATERIALS PRODUCED SUBSEQUENT TO THE REOPENING WILL NOT RESCU E AN INHERENTLY DEFECTIVE REOPENING ORDER FROM INVALIDITY . 13. A PERUSAL OF THE REASONS RECORDED DEMONSTRATES TOTAL NON APPLICATION OF MIND BY THE AO. THUS APPLYING THE PROPOSITION OF LAW LAI D DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF G & G PHARMA INDIA (SUPRA) WE HOLD THAT THE RE-OPENING OF ASSESSMENT IS BAD IN LAW. 14. HENCE WE QUASH THE RE-ASSESSMENT PROCEEDING S AND ALLOW THE APPEAL OF THE ASSESSEE. ORDER PRONOUNCED IN THE OPEN COURT ON 20/5/2016. SD/- SD/- (H.S. SIDHU) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 20 TH MAY, 2016 VEENA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER ASSTT. REGISTRAR