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

ITA 4094/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4316 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 07-04-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 09-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KISHORE
• Keywords: Reopening of assessment; Unexplained investment; Depreciation; Question of law; Wrong claim; Accommodation entries; Reason to believe; Reassessment proceedings
• Section: 143(3); 133(6); 147; 68; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: E NEW DELHI BEFORE SHRI R.P.TOLANI. JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO: 4094/DEL/2009 ASSESSMENT YEAR : 2001-02 ITO, WARD 13(1) VS. NARNAUDIA FINANCIAL SERVICES PVT.LTD. NEW DELHI 409, MG HOUSE, WAZIRPUR COMMUNITY CENTRE WAZIRPUR, NEW DELHI 110 052 C.O.NO.377/DEL/09 (IN ITA NO: 4094/DEL/2009) ASSESSMENT YEAR : 2001- 02 NARNAUDIA FIN.SERVICES P.LTD. VS. ITO, WARD 13(1) NEW DELHI NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY :SHRI B.KISHORE, SR.D.R. RESPONDENT BY : SHRI AMOL SINHA, ADV. PER SHAMIM YAHYA, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE AND THE C.O. BY THE AS SESSEE EMANATE OUT OF THE ORDERS OF LD.CIT(A) DATED 7.7.2009 AND P ERTAIN TO A.Y. 2001- 2002. ITA 4094/DELHI/2009 PAGE 2 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. 2. IN THE C.O. THE ASSESSEE HAS TAKEN UP THE ISSUE OF VALIDITY OF INITIATION OF PROCEEDINGS U/S 147, HENCE WE TAKE UP THE C.O. FIRST. THE GROUND RAISED IN THE C.O. READS AS UNDER. THAT IN THE FACTS AND CIRCUMSTANCES, THE CIT(A) ER RED IN HOLDING THAT THE PROCEEDINGS U/S 147 HAVE BEEN VALIDLY INIT IATED IN THE CASE OF THE APPELLANT AND THAT THE REOPENING WAS DO NE BY THE A.O. AS PER THE PROVISIONS OF THE INCOME TAX ACT, 1 961. 3. IN THIS CASE THE RETURN OF INCOME WAS FILED ON 2 8.09.2001 DECLARING INCOME OF RS.66,101/-. THEREAFTER ASSESSMENT U/S 1 43(3) WAS MADE ON 27.1.2003 ACCEPTING THE RETURNED INCOME. SUBSEQUEN TLY ASSESSMENT WAS REOPENED U/S 147 ON THE BASIS OF INFORMATION RE CEIVED FROM THE DIRECTORATE OF INVESTIGATION WING, INCOME TAX DEPA RTMENT THAT THE ASSESSEE HAS TAKEN ACCOMMODATION ENTRY OF SHARE CAP ITAL MONEY FROM M/S FAIR N SQUARE EXPORT PVT.LTD. IT WAS ALSO FO UND THAT THE ASSESSEE COMPANY RECEIVED SHARE CAPITAL MONEY FROM THREE COM PANIES I.E. FAIR N SQUARE EXPORT PVT.LTD, ONYX EXIM & SALES P.LTD., B.T.TECHNET LTD. OF RS. 400,000/-, RS. 300,000/- AND RS. 400,000/- RESP ECTIVELY. IN THE ASSESSMENT PROCEEDINGS THE A.O. TREATED THE SAID SH ARE CAPITAL MONEY AS UNEXPLAINED INVESTMENT OF THE ASSESSEE ON THE BASIS OF STATEMENT MADE BY DIRECTORS OF THIS COMPANY AND ADDED THE SAME U/S 68 OF THE INCOME TAX ACT, 1961. BEFORE THE LD.CIT(A) THE ASSESSEE AGITATED ON THE ISSUE OF REOPENING OF ASSESSMENT AND HAS SUBMITTED THE FOLLO WING. ITA 4094/DELHI/2009 PAGE 3 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. THAT THE NOTICE U/S 148/147 (EXPIRED ON 31.3.2006) ISSUED AFTER FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR (200 1-2002) IN WHICH ORIGINAL ASSESSMENT WAS MADE U/S 143(3) OF THE INCO ME TAX ACT, 1961 IS NOT IN ACCORDANCE WITH THE LAW. THE NOTICE WAS ISS UED ON 25.3.2008. THE TIME WAS EXPIRED ON 31.3.2006. THE PROCEEDINGS U/S 147 CAN BE INITIATED IF THE FOL LOWING CONDITIONS ARE SATISFIED:- THAT THE A.O. (HAS REASON TO BELIEVE) THAT ANY INCO ME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153, ASSESS OR REASSE SS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS E SCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE C OURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTED THE L OSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS THE CASE MAY B E, FOR THE ASSESSMENT YEAR CONCERNED (HEREINAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR) : PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT A.Y, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS F ROM THE END OF THE RELEVANT A.Y, UNLESS ANY INCOME CHARGEABLE TO TAX H AS ESCAPED ASSESSMENT FOR SUCH A.Y. BY REASON OF THE FAILURE O N THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB SECTION (1) OF SECTION 142 OR SECT ION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HI S ASSESSMENT, FOR THAT A.Y. ITA 4094/DELHI/2009 PAGE 4 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. IT IS HEREBY MENTIONED THAT THE EMPHASIS IN THE PRO VISO IS ON ACCOUNT OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL MATERIAL FACTS BEFORE THE A.O. IF THERE IS A FAILURE ON THE PART OF THE ASSE SSEE TO DISCLOSE THE FACTS, ONLY THEN ESCAPEMENT OF INCOME CAN BE CONSIDERED. IT IS HEREBY SUBMITTED THAT AT THE TIME OF REASSESS MENT, ALL THE FACTS WERE BROUGHT TO NOTICE OF LD.AO AND HE HIMSELF AFTER SAT ISFYING AND MAKING INDEPENDENT ENQUIRY U/S 133(6) IN RESPECT OF ALL TH E TRANSACTION, PASSED THE ORDER U/S 143(3). (REFER OUR LETTER DT. 31.10.2008 PAGE NO.12 TO 16 O F PAPER BOOK). THE FOLLOWING ADDITION WAS MADE BY THE LD.ITO AGAIN ST WHICH WE HAVE FILED AN APPEAL BEFORE YOU. SHARE MONEY PAID FROM FAIR N SQUARE EXPORTS P.LTD. 400000.00 SHARE MONEY PAID FROM ONYX EXIM & SALES P.LTD. 3000 00.00 SHARE MONEY PAID FROM BT TECHNET LTD. 400000.00 DETAILS IN RESPECT OF ALL ABOVE PARTIES WERE SUBMIT TED VIDE OUR LETTER DATED 16.12.2002 (PAPER BOOK PAGE NO. 7 AND 8) AT THE TIM E OF MAKING THE ORIGINAL ASSESSMENT. THE LD.ITO HAS ALSO MADE INDEPENDENT ENQUIRIES IN R ESPECT OF ABOVE PARTIES AND PASSED THE ORDER U/S 143(3) OF THE INCO ME TAX ACT, 1961. THESE ALL FACTS WERE DISCUSSED AND DULY BROUGHT TO THE NOTICE OF LD.ITO IN ASSESSMENT PROCEEDINGS U/S 147/148 THAT THERE WAS N O FAILURE ON OUR PART TO DISCLOSE ALL MATERIAL FACTS IN THE ORIGINAL ASSESSMENT AND AS SUCH THERE IS NO ESCAPEMENT OF INCOME. HENCE, THEREFORE IT WAS REQUESTED TO WITHDRAW THE NOTICE ISSUED AFTER PASSING OF FOUR YE ARS FROM THE END OF RELEVANT A.Y. WHILE DISPOSING THE OBJECTION BY THE LD.ITO, VIDE ORDER RECEIVED ON 12.12.2008, NO WHERE IT HAS BEEN STATED THAT WHET HER THERE ITA 4094/DELHI/2009 PAGE 5 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. WAS ANY FAILURE ON OUR PART TO DISCLOSE ALL MATERIA L FACTS BEFORE THEN LD.ITO OR WHETHER THESE ALLEGED TRANSACTIONS WERE SUBJECT MATTER OF THE ORIGINAL ASSESSMENT OR NOT. THE CASES CITED BY LD.ITO WHILE DISPOSING OBJECTION ARE NOT RELEVANT IN OUR CASE BECAUSE THERE WAS NO OTHER MATERIAL BEFORE THE LD.AO WHICH HAS NOT TAKEN INTO CONSIDERATION IN THE ORIGINAL ASSESSMENT U/S 143(3). THE FOLLOWING PRONOUNCEMENTS ARE GIVEN IN SUPPORT O F OUR CONTENTION:- IN CASE CIT VS. PREMIER MILLS LTD. (T.C.A.) NOS. 60 3 AND 604 OF 2007 (2009) 179 TAXMAN 13 (MAD.) HIGH COURT OF MADRAS STATED TH AT THE CASE CAN NOT BE REOPENED AFTER FOUR YEARS WITHOUT ESTABLISHING T HAT THERE WAS A FAILURE ON THE PART OF ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS (COPY OF JUDGEMENT ENCLOSED PAGE NOS. S-1 TO S-4). IN JSRS UDYOG LTD. AND ANOTHER VS ITO IN WP 8688/ 2008 DT. 10.12.2008. HIGH COURT OF DELHI IN ITS JUDGEMENT H AS GIVEN THE SIMILAR VIEW (COPY OF JUDGEMENT ENCLOSED PAGE NOS. S-5 TO S-14). IN WP(C) 4074/2007 IN CASE OF HARYANA ACRYLIC VS CI T-IV, THE SIMILAR VIEW WERE GIVEN BY HONBLE HIGH COURT OF DELHI AN ORDER DT. 3.11.2008 FACTS (COPY OF ORDER ENCLOSED PAGE NOS. S-15 TO S-33). IN PREHLADBHAI NARANBHAI PATEL VS ITO (2009) 180 TA XMAN 122 (GUJ.), THE ASSESSEE ALONG WITH RETURN OF INCOME HAD PLACED A N OTE POINTING OUT FACTUM OF FIRE AND FACTUM OF HIS HAVING MADE CLAIM BEFORE INSURANCE COMPANY. THE NOTE ALSO READ THAT CLAIM HAD NOT BEE N SETTLED TILL POINT OF TIME OF FILING OF RETURN. FURTHER, THE ASSESSEE HA D ALSO CATEGORICALLY STATED IN SAID NOTE THAT WHEN CLAIM WOULD BE SETTLED AND R ECEIVED, SAME WOULD BE OFFERED AS INCOME OF YEAR OF RECEIPT. IN THIS C ASE PERHAPS THE A.O. INITIATED REASSESSMENT ACTION ON THE BASIS OF SURVE YOR REPORT WITHOUT REFERENCE TO ACTUAL SETTLEMENT DETAILS. ITA 4094/DELHI/2009 PAGE 6 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. THE GUJARAT HIGH COURT HELD THAT THERE WAS NO FAILU RE ON THE PART OF ASSESSEE IN RETURNING INCOME AND, THUS, IT QUASHED THE NOTICE ISSUED U/S 148 HAVING BEEN ISSUED BEYOND A PERIOD OF FOUR YEAR S FROM THE END OF RELEVANT A.Y. 4. CONSIDERING THE ABOVE, THE LD.CIT(A) HELD AS UND ER. I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE, SUBMISSIONS OF THE APPELLANT AND JUDICIAL PRONOUNCEMENTS ON THE ISSUE. IT IS SEEN THAT IN THIS CASE THE REASONS TO BELIEVE WAS FORMED BY T HE AO ON THE SPECIFIC INFORMATION RECEIVED FROM THE INVESTIGATION WING OF THE DEPARTMENT. THE SAID INFORMATION WAS NOT GENERAL OR VAGUE, AS ALLEG ED BY THE APPELLANT, BUT WAS SPECIFIC INFORMATION, PERTAINING TO THE TRA NSACTION MADE BY THE APPELLANT. IN THE SAID INFORMATION CHEQUE AMOUNT, DATE OF THE CHEQUE AND NAME OF THE PERSON ISSUING THE CHEQUE ETC. IN RESPE CT OF THE ALLEGED ACCOMMODATION ENTRY RECEIVED BY THE APPELLANT, WERE DULY MENTIONED. MOREOVER, THE INFORMATION PROVIDED BY THE INVESTIGA TION WING, ALSO CORROBORATED WITH THE RETURN FILED BY THE APPELLAN T. THESE FACTS WERE SUFFICIENT FOR FORMING THE REASONS TO BELIEVE BY TH E A.O. ANY SUBSEQUENT INVESTIGATION COULD ONLY BE DONE ONLY AFTER INITIAT ING THE PROCEEDINGS AS PER PROVISIONS OF THE I.T.ACT. FURTHER, AS PER THE PROVISIONS OF SECTION 147 OF TH E I.T.ACT, MERE PRODUCTION OF ACCOUNT BOOKS FROM WHICH MATERIAL EVIDENCE COULD HAVE BEEN DISCOVERED BY THE A.O. WILL NOT NECESSARILY AMOUNT TO DISCLOSU RE. THEREFORE, MERE PRODUCTION OF BALANCE SHEET, PROFIT AND LOSS ACCOUN T OR ACCOUNT BOOKS WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEA NING OF THE PROVISIONS OF SECTION 147 OF THE I.T.ACT. RELIANCE IN THIS REG ARD IS ALSO PLACED ON THE DECISION OF HONBLE MUMBAI HIGH COURT IN THE CASE D R.AMINS PATHOLOGY LABORATORY VS. JCIT (2001) 252 ITR 673 (BOM.) ITA 4094/DELHI/2009 PAGE 7 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. THE A.O. HAS FOLLOWED ALL THE PROCEDURES LAID DOWN IN THE ACT AND RECORDED REASONS WHICH HAD LIVE LINK WITH THE MATERIAL IN PO SSESSION. THE BELIEF FORMED BY THE AO WAS RATIONAL AND ON THE BASIS OF R ELEVANT MATERIAL AND IT WAS NOT BASED ON GOSSIP/RUMOURS. THE A.O. RECORDIN G HIS SATISFACTION, ON THE BASIS OF INFORMATION RECEIVED FROM INVESTIGATIO N WING OF THE DEPARTMENT AND AFTER SATISFYING HIMSELF WITH THE CO NTENTS OF THE INFORMATION. THEREFORE, THE CASE LAWS RELIED UPON BY THE APPELLANT ARE NOT APPLICABLE IN THE INSTANT CASE. THE APPELLANT HAS TAKEN THE PLEA THAT ASSESSMENT HA S BEEN REOPENED AFTER THE EXPIRY OF THE TIME LIMIT PROVIDED U/S 151 OF TH E I.T.ACT, 1961. IT IS SEEN THAT THE ASSESSMENT HAS BEEN REOPENED WITHIN SIX YE ARS BEFORE THE END OF THE RELEVANT A.Y. AND THE INCOME ALLEGED TO HAVE ES CAPED WAS MORE THAN RS. 1,00,000/-. THOUGH THE APPELLANT HAS DISCLOSED DETAILS OF SHARE CAPITAL MONEY RECEIVED BY IT IN THE RETURN OF INCOM E AND THE AO ALSO OBTAINED CONFIRMATION BY SENDING LETTER U/S 133(6) OF THE I.T.ACT FROM THE INVESTORS. HOWEVER, SUBSEQUENTLY, IT CAME TO BE KN OWN THAT THE INVESTORS WERE NOT DOING ANY BUSINESS AND THEY WERE PROVIDING ONLY ACCOMMODATION ENTRIES. SINCE, THIS WAS ANEW REVELATION WHICH WAS NOT AVAILABLE WITH THE AO AT THE TIME OF FRAMING THE ORIGINAL ASSESSMENT, THEREFORE, THE ASSESSMENT REOPENED BY THE AO ON THE BASIS OF INFOR MATION RECEIVED FROM INVESTIGATION WING WAS VALIDLY REOPENED. FURTHER, THE APPELLANT HAS NOT POINTED OUT ANY SPE CIFIC INFIRMITY IN THE ACTION OF THE AO, AS FAR AS REOPENING OF ASSESSMENT AS PER THE PROVISIONS OF S.147 IS CONCERNED. HENCE, IT IS CLEAR THAT THE REASON TO BELIEVE RECORDED BY THE AO, WERE HAVING RATIONAL NEXUS/RELEVANT TO T HE FACTS OF THE APPELLANT AND THE REOPENING WAS DONE BY THE AO AS P ER THE PROVISIONS OF ITA 4094/DELHI/2009 PAGE 8 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. THE I.T.ACT. MOREOVER, IT IS SEEN THAT THE APPELLA NT HAS NOT RAISED ANY OBJECTIONS TO THE INITIATION OF THE PROCEEDINGS U/S 147/148, DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE PROCEEDI NGS U/S 147 HAVE BEEN VALIDLY INITIATED IN THE CASE OF THE APPELLANT AND THE REOPENING WAS DONE BY THE A.O. AS PER THE PROVISIONS OF THE I.T.ACT. 5. AGAINST THIS ORDER THE ASSESSEE HAS FILED THE CROSS OBJECTION. WE CAN GAINFULLY REFER TO PROVISIONS OF S.147 OF THE I NCOME TAX ACT, 1961 IN THIS REGARD WHICH READ AS UNDER. S.147. INCOME ESCAPING ASSESSMENT. IF THE A.O. HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153, ASSESS OR REASSE SS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS E SCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE C OURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTED THE L OSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS THE CASE MAY B E, FOR THE ASSESSMENT YEAR CONCERNED (HEREINAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR) : PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT A.Y, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS F ROM THE END OF THE RELEVANT A.Y, UNLESS ANY INCOME CHARGEABLE TO TAX H AS ESCAPED ASSESSMENT FOR SUCH A.Y. BY REASON OF THE FAILURE O N THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ITA 4094/DELHI/2009 PAGE 9 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. ISSUED UNDER SUB SECTION (1) OF SECTION 142 OR SECT ION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HI S ASSESSMENT, FOR THAT A.Y. EXPLANATION 1 : PRODUCTION BEFORE THE A.O. OF ACCOU NT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DU E DILIGENCE HAVE BEEN DISCOVERED BY THE AO WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE FOREGOING PROVISO. 6. WE FIND THAT IN THIS CASE THE ASSESSMENT ORDER H AS BEEN REOPENED AFTER EXPIRY OF 4 YEARS FROM THE END OF RELEVANT A SSESSMENT YEAR. UNDER THE CIRCUMSTANCES THE PROVISO TO THE SECTION IS AP PLICABLE. THE PROVISO STATES THAT WHERE AN ASSESSMENT UNDER SUB SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT A.Y, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS F ROM THE END OF THE RELEVANT A.Y, UNLESS ANY INCOME CHARGEABLE TO TAX H AS ESCAPED ASSESSMENT FOR SUCH A.Y. BY REASON OF THE FAILURE O N THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB SECTION (1) OF SECTION 142 OR SECT ION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HI S ASSESSMENT, FOR THAT A.Y. 7. IN THIS REGARD THE LD.COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ASSESSEE HAS DULY SUBMITTED ALL THE NECESSARY DETAI LS, HENCE, REOPENING IS NOT VALID. IN THIS REGARD HE REFERRED TO THE RE ASONS FOR THE REOPENING RECORDED WHICH READ AS UNDER. ITA 4094/DELHI/2009 PAGE 10 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. INFORMATION HAS BEEN RECEIVED FROM THE INVESTIGATI ON WING OF THE INCOME TAX DEPARTMENT THAT THE ABOVE NAMED ASSESSEE IS A B ENEFICIARY OF ACCOMMODATION ENTRIES RECEIVED FROM CERTAIN ESTABLI SHED ENTRY OPERATORS IDENTIFIED BY THE WING DURING THE PERIOD RELEVANT T O A.Y. 2001-02. A COMPREHENSIVE INVESTIGATION WAS CARRIED OUT BY THE INVESTIGATION WING FOR IDENTIFICATION OF ENTRY OPERATORS ENGAGED IN THE BU SINESS OF MONEY LAUNDERING FOR THE BENEFICIARIES AND ON THE BASIS O F INVESTIGATION CARRIED OUT AND EVIDENCES COLLECTED, A REPORT AHS BEEN FORW ARDED. I HAVE PERUSED THE INFORMATION CONTAINED IN THE REPORT AND THE EVI DENCES GATHERED. THE REPORT PROVIDES DETAILS OF THE MODUS OPERANDI OF TH E MONEY LAUNDERING SCAM AND EXPLAIN HOW THE UNACCOUNTED MONEY OF THE B ENEFICIARIES ARE PLOUGHED BACK INTO ITS BOOKS OF ACCOUNTS IN THE FOR M OF BOGUS SHARE CAPITAL/CAPITAL GAINS ETC. AFTER ROUTING THE SAME T HROUGH THE BANK ACCOUNTS OF THE ENTRY OPERATORS. ENTRY OPERATORS WERE IDENT IFIED AFTER THROUGH INVESTIGATION ON THE BASIS OF DEFINITE ANALYSIS OF THEIR IDENTITY, CREDIT WORTHINESS AND THE SOURCE OF MONEY ULTIMATELY RECEI VED BY THE BENEFICIARIES. THESE ENTRY OPERATORS ARE FOUND TO BE MOSTLY ABSCONDING AFTER THE UNEARTHING OF THE MONEY LAUNDERING SCAMS LEAVING THE SAID MONEY AT THE DISPOSAL OF THE BENEFICIARIES WITHOUT ANY ASSOCIATED COST OR LIABILITY. IN THE INSTANT CASE, THE ASSESSEE IS FO UND TO BE THE BENEFICIARY OF ACCOMMODATION ENTRY FROM SUCH ENTRY OPERATORS AS PE R THE FOLLOWING SPECIFIC DETAILS OF TRANSACTION. ENTRY OPERATOR BENEFICIARYS BANK AMOUNT (RS.) INSTRUMENT NO. BY WHICH ENTRY TAKEN AND DATE ENTRY GIVING BANK ACCOUNT NO. FROM WHICH ENTRY WAS GIVEN FAIR N SQUARE EXPORTS P.LTD. INDRAPRASTHA SEHKARI BANK LTD., WAZIRPUR GROUP INDL.AREA 400000 429141 DT. 30.6.2000 VIJAYA BANK, RAM NAGAR 2785 ITA 4094/DELHI/2009 PAGE 11 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. T HE ASSESSEE HAS RECEIVED UNEXPLAINED SUMS FROM THE ENTRY OPERATORS AS PER THE ABOVE DETAILS AS PER INFORMATION AVAILABLE WITH THE UNDERSIGNED. AS EXPLAINED ABOVE, THE IDENTITY, CREDIT WORTHINESS AND GENUINENESS OF TRANSACTIONS WITH THE PERSONS FOUND TO BE ENTRY OPE RATORS CANNOT BE ESTABLISHED. I THEREFORE HAVE REASONS TO BELIEVE T HAT ON ACCOUNT OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE TRULY AND F ULLY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT FOR ABOVE A.Y., THE INCOME CHARGEABLE TO TAX TO THE EXTENT OF ACCOMMODATION ENTRY MENTIONED ABOVE, AHS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. SINCE FOUR YEARS HAS SINCE EXPIRED FROM THE END OF THE RELEVANT YEAR, AND ASSESSMENT U/S 143(3) WAS COMPLETED IN THE CASE OF THE ASSESSEE FOR THE SAID ASSESSMENT YEAR, THE REASONS RECORDED ABOVE FO R THE PURPOSE OF REOPENING OF ASSESSMENT IS PUT UP FOR KIND SATISFAC TION OF CIT, DELHI V, NEW DELHI IN TERMS OF THE PROVISO TO SECTION 151 OF THE ACT. 8. REFERRING TO THE AFORESAID REASONS LD.COUNSEL FO R THE ASSESSEE SUBMITTED THAT REASONS RECORDED ARE NOT COGENT ENOU GH TO WARRANT REOPENING. IN THIS REGARD HE REFERRED TO THE FOLLO WING DECISIONS. I) SMT. RAJ RANI GULATI VS. UOI AND ANOTHER, 32 9 ITR 370 (ALL.) II) CIT VS. SFIL STOCK BROKING LTD. 325 ITR 285 (D ELHI) III) SARTHAK SECURITIES CO.P.LTD. VS ITO, 329 ITR 110 (DELHI) IV) JSRS UDYOG LTD. AND ANOTHER VS ITO, 313 ITR 321 (DELHI) V) HARYANA ACRYLIC MANUFACTURING CO. VS CIT AND ANO THER, 308 ITR 38 (DELHI) 9. WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS IN THE LIGHT OF DOCUMENTS PRODUCED AND PRECEDENTS RELIED UPON. IN THIS REGARD WE REFER TO THE DECISION OF HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF ITA 4094/DELHI/2009 PAGE 12 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. SARTHAK SECURITIES CO.P.LTD. VS ITO, 329 ITR 110 (D ELHI) WHEREIN IT WAS HELD, ALLOWING THE PETITION, THAT THE FORMATION OF BELIEF WAS A CONDITION PRECEDENT AS REGARDS THE ESCAPEMENT OF THE TAX PERT AINING TO THE ASSESSMENT YEAR BY THE A.O. THE A.O. WAS REQUIRED TO FORM AN OPINION BEFORE HE PROCEEDED TO ISSUE A NOTICE. THE VALIDIT Y OF REASONS, WHICH WERE SUPPOSED TO SUSTAIN THE FORMATION OF AN OPINIO N, WAS CHALLENGEABLE. THE REASONS TO BELIEVE WERE REQUIRED TO BE RECORDED BY THE A.O. ONCE THE INGREDIENTS OF SECTION 147 WERE FULFILLED, THE A.O. WAS COMPETENT IN LAW TO INITIATE THE PROCEEDINGS U/S 147. THE A.O. WAS AWA RE OF THE EXISTENCE OF THE FOUR COMPANIES WITH WHOM THE ASSESSEE HAD ENTER ED INTO TRANSACTION. BOTH THE ORDERS SHOWED THAT THE A.O. WAS MADE AWARE OF THE SITUATION BY THE INVESTIGATION WING AND THERE W AS NO MENTION THAT THESE COMPANIES WERE FICTITIOUS COMPANIES. NEITHER THE REASONS IN THE INITIAL NOTICE NOR THE COMMUNICATION PROVIDING REAS ONS REMOTELY INDICATED INDEPENDENT APPLICATION OF MIND. THOUGH CONCLUSIVE PROOF WAS NOT GERMANE AT THIS STAGE OF THE FORMATION OF BELIE F MUST BE ON THE BASE OR FOUNDATION OR PLATFORM OF PRUDENCE WHICH A REASO NABLE PERSON WAS REQUIRED TO APPLY. FROM THE PERUSAL OF THE REASONS RECORDED AND THE ORDER OF REJECTION OF OBJECTIONS, THE NAMES OF THE COMPANIES WERE AVAILABLE WITH THE AUTHORITY AND THEIR EXISTENCE WA S NOT DISPUTED. THE ASSESSEE IN ITS OBJECTIONS HAD STATED THAT THE COMP ANIES HAD BANK ACCOUNTS AND PAYMENTS WERE MADE TO THE ASSESSEE THR OUGH BANKING CHANNEL. THE IDENTITY OF THE COMPANIES WAS NOT DIS PUTED. UNDER THESE ITA 4094/DELHI/2009 PAGE 13 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. CIRCUMSTANCES, THE INITIATION OF PROCEEDINGS U/S 14 7 AND ISSUANCE OF NOTICE U/S 148 OF THE ACT WERE TO BE QUASHED. WE FURTHER FREFER TO JSRS UDYOG LTD. AND ANOTHER VS ITO, 313 ITR 321 (DELHI) :IN THIS CASE THE ORIGINAL ASSESSMENT O F THE ASSESSEE WAS FRAMED U/S 143(3) ON MARCH 5, 2003. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAD FURNISHED DETAILS OF S HARE APPLICATION MONEY RECEIVED BY IT FROM S. IT WAS ALSO STATED T HAT ALL THE SHARE APPLICATION MONEY HAD COME FROM COMPANIES WHICH WER E DULY REGISTERED UNDER THE COMPANIES ACT, 1956, AND THAT EACH ONE OF THEM WAS A LEGAL ENTITY. IT WAS ALSO STATED THAT THE APPLICANTS HAD CONFIRMED THEIR INVESTMENTS THROUGH DULY ATTESTED AFFIDAVITS. THE STATEMENTS WERE ACCEPTED, BUT SUBSEQUENTLY THE A.O. ISSUED NOTICE U /S 148 ON MARCH 28, 2008. IN THE REASONS RECORDED IN WRITING FOR REOPE NING THE CASE U/S 148 OF THE ACT, THERE WAS NO ALLEGATION THAT THE ASSESS EE DID NOT MAKE A FULL AND TRUE DISCLOSURE OF ALL THE MATERIAL FACTS. THE ASSESSEE OBJECTED TO THE NOTICE BUT THE AO REJECTION THE OBJECTION. ON A WR IT PETITION AGAINST THE ORDER : HELD, THAT THE AOS ORDER HAD NOT DEALT WITH ANY OF THE OBJECTIONS RAISED BY THE ASSESSEE. SECONDLY, THE ORDER WAS NOTHING B UT A REPETITION OF WHAT WAS GIVEN IN THE PURPORTED REASONS. THERE WAS NO INDICATION OF ANY SPECIFIC INFORMATION WITH REGARD TO ANY ACCOMMODA TION ENTRY BEING PROVIDED BY THE ASSESSEE. APART FROM MERELY SAYING THAT THE RECEIPTS OF THE SHARE APPLICATION MONEY WERE BOGUS AND SHAM TRA NSACTIONS, THERE ITA 4094/DELHI/2009 PAGE 14 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. WAS NOTHING INDICATED EITHER IN THE REASONS OR IN T HE ORDER TO ARRIVE AT A CONCLUSION THAT THERE HAD BEEN FAILURE TO DISCLOSE MATERIAL FACTS NECESSARY FOR ASSESSMENT. MERELY HAVING A REASON TO BELIEVE THAT INCOME HAD E SCAPED ASSESSMENT, WAS NOT SUFFICIENT TO REOPEN ASSESSMENTS BEYOND THE FOUR YEAR PERIOD. THE ESCAPEMENT OF INCOME FROM ASSESSMENT MUST ALSO BE OCCASIONED BY THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS, FULLY AND TRULY. THE NOTICE AND THE ORDER OF AO WERE NOT VAL ID. THEY WERE LIABLE TO BE QUASHED. IN CIT VS. SFIL STOCK BROKING LTD. 325 ITR 285 (DE LHI) THE HONBLE JURISDICTION HIGH COURT HAS HELD AS UNDER. THE ASS ESSEE IN HIS ORIGINAL RETURN OF INCOME HAD SHOWN A LONG TERM CAPITAL GAIN OF RS. 40,953/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T.ACT, 1961. SUBSEQUENTLY, ON THE BASIS OF THE INFORMATION GIVEN BY THE DY.DIR ECTOR OF I.T.(INVESTIGATION) THAT THE ASSESSEE WAS ALLEGEDLY THE BENEFICIARY OF A BOGUS CLAIM OF LONG TERM CAPITAL GAIN SHOWN ON SALE /PURCHASE OF SHARES A NOTICE U/S 148 OF THE ACT WAS ISSUED BY THE AO TO THE ASSESSEE. IN THE REASSESSMENT PROCEEDINGS, THE AO MADE AN ADDITION O F RS. 20,70,000/- HOLDING THAT THE ASSESSEE COULD NOT EXPLAIN THE SOU RCE OF THE ENTRIES. THE CIT(A) CONFIRMED THE ORDER PASSED BY AO. THE T RIBUNAL QUASHED THE ENTIRE REASSESSMENT PROCEEDINGS. ON APPEAL: HELD, DISMISSING THE APPEAL, THAT THE FIRST SENTENC E OF THE REASONS RECORDED BY THE AO WAS MERE INFORMATION RECEIVED FR OM THE DY.DIRECTOR ITA 4094/DELHI/2009 PAGE 15 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. OF I.T.(INVESTIGATION). THE SECOND SENTENCE WAS A DIRECTION GIVEN BY THE SAME DY.DIRECTOR OF I.T.(INVESTIGATION) TO ISSUE A NOTICE U/S 148 AND THE THIRD SENTENCE AGAIN COMPRISED A DIRECTION GIVEN BY THE ACIT TO INITIATE PROCEEDINGS U/S 148 IN RESPECT OF CASES PERTAINING TO THE RELEVANT WARD. THE AO REFERRED TO THE INFORMATION AND THE TWO DIRE CTIONS AS REASONS ON THE BASIS OF WHICH HE WAS PROCEEDING TO ISSUE NOTIC E U/S 148. THESE COULD NOT BE THE REASONS FOR PROCEEDING U/S 147/148 OF THE ACT. AS THE FIRST PART WAS ONLY AN INFORMATION AND THE SECOND A ND THE THIRD PARTS OF THE REASONS WERE MERE DIRECTIONS, IT WAS NOT AT ALL DISCERNIBLE AS TO WHETHER THE AO HAD APPLIED HIS MIND TO THE INFORMAT ION AND INDEPENDENTLY ARRIVED AT A BELIEF THAT, ON THE BASI S OF THE MATERIAL WHICH HE HAD BEFORE HIM, INCOME HAD ESCAPED ASSESSMENT. THERE WAS NO SUBSTANTIAL QUESTION OF LAW FOR CONSIDERATION. 10. IN THE PRESENT CASE THE ORIGINAL ASSESSMENT WAS FRAMED U/S 143(3) OF THE INCOME TAX ACT, 1961. SUBSEQUENTLY INFORMAT ION WAS RECEIVED FROM INVESTIGATION WING OF THE I.T.DEPARTMENT THAT THE ASSESSEE IS A BENEFICIARY OF AN ACCOMMODATION ENTRY RECEIVED FROM CERTAIN ESTABLISHED ENTRY OPERATORS IDENTIFIED BY THE INVESTIGATION WIN G DURING THE PERIOD RELEVANT TO A.Y. 2001-2002. WE FIND THAT AT THE TI ME OF ORIGINAL ASSESSMENT THE ASSESSEE HAS DISCLOSED ALL PARTICUL ARS REGARDING SHARE CAPITAL MONEY. A.O. HAD ALSO OBTAINED CONFIRMATION FROM THE INVESTORS BY SENDING LETTER U/S 133(6). IN THE REASONS RECOR DED THERE IS NO ITA 4094/DELHI/2009 PAGE 16 OF 16 C.O. 377/DELHI/2009 (IN ITA 4094/DEL/09) A.Y. 2001-02 M/S NARNAUDIA FINANCIAL SERVICES PVT. LTD. MENTION THAT ASSESSEE DID NOT MAKE A FULL AND TRUE DISCLOSURE OF MATERIAL FACTS. THE REOPENING WAS DONE MERELY ON THE BASIS OF INFORMATION RECEIVED FROM INVESTIGATION WING. AS PER RATIO EMA NATING FROM ABOVE SAID JURISDICTIONAL HIGH COURT DECISION, ON THE FACTS A ND CIRCUMSTANCES OF THE CASE REOPENING IS NOT VALID. HENCE WE HOLD THA T THE REOPENING WAS NOT VALID. 11. REVENUES APPEAL:- SINCE WE HAVE QUASHED THE REASSESSMENT ON JURISDICTIONAL GROUND, ADJUDICATION OF REVENUES AP PEAL ON THE MERITS OF THE CASE HAVE BECOME ACADEMIC AND THE SAME ARE NOT BEING DEALT WITH. 12. IN THE RESULT THE ASSESSEES CROSS OBJECTIO N IS ALLOWED AND THE REVENUES APPEAL IS TREATED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON 20.4 .2011. SD/- SD/- (R.P.TOLANI ) (SHAMIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20 TH APRIL, 2011 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; RESPONDENT; CIT; CIT(A); DR; GUARD FILE BY ORDER DY. REGISTRAR // C O P Y //