Shri Sandeep Kumar, Muzaffarnagar V. ITO, Shamli

ITA 5016/DEL/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86868 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 02-03-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 15-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Keywords: Reopening of assessment; Deemed dividend; Reason to believe; Reassessment proceedings
• Section: 147; 148

Judgement Text

1 ITA 5016/DEL/2010 SANDEEP KUMAR VS. ITO IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI G.D. AGRAWAL : VICE PRESIDENT AND SHRI GEORGE GEORGE K.: JUDICIAL MEMBER ITA NO. 5016/DEL/2010 ASSTT. YR: 2002-03 SANDEEP KUMAR , VS. INCOME-TAX OFFICER, PROP. BALAJI TRADING CO., WARD-1, SHAMLI (UP). V.V. INTER COLLEGE ROAD, SHAMLI. PAN: ADEPK 2923 K. ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI ANKIT GUPTA ADV. RESPONDENT BY : SHRI B.R.R. KUMAR SR. DR DATE OF HEARING: 02/03/2015. DATE OF ORDER: 02/03/2015. O R D E R PER G.D. AGRAWAL, V.P. : THIS APPEAL, BY THE ASSESSEE, IS DIRECTED AGAINST C IT(A)S ORDER DATED 13-8-2010, RELATING TO A.Y. 2002-03. 2. GROUND NOS. 1 TO 3 OF THE ASSESSEES APPEAL READ AS UNDER: 1. THAT THE NOTICE ISSUED U/S 148 IS ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION AND THE RE-ASSESSMENT ORDER PA SSED IS ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION. 2. THAT THE NOTICE ISSUED U/S 148 HAS BEEN ISSUED W ITHOUT ANY APPROVAL OF THE HIGHER AUTHORITY AND THE APPROV AL, IF ANY, IS GIVEN WITHOUT ANY APPLICATION OF MIND. 2 ITA 5016/DEL/2010 SANDEEP KUMAR VS. ITO 3. THE CIT(A) HAS ERRED ON FACTS & IN LAW IN UPHOLD ING THE INITIATION OF REASSESSMENT PROCEEDINGS U/S 147 AND UPHOLDING THE VALIDITY OF NOTICE U/S 148. 3. AT THE TIME OF HEARING, BEFORE US, IT WAS POINTE D OUT BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE AO HAS REOPENED THE CASE SIMPLY AS PER THE DIRECTION OF THE CIT(A) FOR A.Y. 2003-04, WITHOUT A NY INDEPENDENT APPLICATION OF MIND. THEREFORE, REOPENING IS BAD IN LAW. IN SUPPORT OF THIS CONTENTION, HE RELIED ON THE FOLLOWING DECISIONS: - CIT VS. M/S TEJASKIRAN PHARMACHEM INDUSTRIES PVT. L TD. (ITA NO. 398 OF 2013 DATED 18-2-2015 (BOM.); - M.B. TRADERS VS. ACIT (ITA NO. 188/NAG/2008 DATED 1 4-7-2009 (ITAT NAGPUR); AND - M/S HOTEL HERO VS. DCIT (IT(SS)A NO. 45-46/AHD/2008 DATED 16- 12-2010 (ITAT AHMEDABAD); 4. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORD ERS OF THE AUTHORITIES BELOW AND STATED THAT THE AO, AFTER CONSIDERING TH E OBSERVATIONS OF THE CIT(A) FOR AY 2003-04, HAS APPLIED HIS MIND INDEPEN DENTLY AND THE ALLEGATION OF THE ASSESSEES COUNSEL THAT AO REOPEN ED THE CASE WITHOUT ANY INDEPENDENT APPLICATION OF MIND, IS INCORRECT. IN T HIS REGARD HE REFERRED THE RELEVANT PORTION OF THE REASONS RECORDED FOR REOPEN ING OF ASSESSMENT. 5. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT THE HONBLE BOMBAY 3 ITA 5016/DEL/2010 SANDEEP KUMAR VS. ITO HIGH COURT IN THE CASE OF M/S TEJASKIRAN PHARMACHEM INDUSTRIES PVT. LTD. (SUPRA), HELD AS UNDER: 9. WE FIND THAT THE REASONS AS RECORDED IN SUPPOR T OF THE REOPENING NOTICE DATED 10 FEBRUARY 2003 MERELY STAT ES THAT LOANS WERE TAKEN BY SOME COMPANIES BUT THAT DOES NO T INDICATE IN WHAT MANNER THOSE LOANS WOULD BE HIT BY THE PROV ISIONS OF DEEMED DIVIDEND. THE REASONS MUST INDICATE LIVE LI NK BETWEEN THE MATERIAL AND THE BELIEF. (SEE ITO VS. LAKHMANI MEWAL DAS IN 103 ITR 437 AND CIT VS. KELVINATOR INDIA LTD. IN 320 ITR 561). THE MATERIAL HERE IS THAT THE RESPONDENT- ASS ESSEE HAS RECEIVED A LOAN FROM THREE PRIVATE LIMITED COMPANIE S BUT THAT BY ITSELF DOES NOT MAKE IT DEEMED DIVIDEND LEADING TO REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED A SSESSMENT. MOREOVER, WE ALSO NOTICE THAT THE ASSESSING OFFICER IN ISSUING THE NOTICE DATED 7 MARCH 2000 HAS ACTED AT THE DIRE CTIONS OF THE CIT(A). THIS SEEMS TO BE AN ADMITTED POSITION. THIS IS MORE THAN EVIDENT FROM QUESTION 1 AS FORMULATED BY THE R EVENUE HEREINABOVE WHICH STATES THAT THE ASSESSING OFFICER WAS REQUIRED TO CARRY OUT THE REASSESSMENT IN VIEW OF T HE SECTION 150 OF THE ACT I.E. IN PURSUANCE OF THE DIRECTION B Y THE CIT(A). THIS ITSELF AN INDICATION OF THE ASSESSING OFFICER AS PER THE DIRECTION OF THE CIT(A) IN ISSUING THE IMPUGNED NOT ICE. 10. SO FAR AS THE SECTION QUESTION IS CONCERNED, IT IS A SETTLED POSITION IN LAW THAT EVEN THOUGH THE ASSESSMENT HA S BEEN PROCESSED UNDER SECTION 143 (1) (A) OF THE ACT FOR THE PURPOSES OF REOPENING OF ASSESSMENT, THE CONDITION STIPULATE D FOR INVOKING JURISDICTION UNDER SECTION 147/148 OF THE ACT HAS TO BE SATISFIED. 11. IN VIEW OF THE ABOVE, WE SEE NO REASON TO ENTE RTAIN THE PRESENT APPEAL AS THE TRIBUNAL BY THE IMPUGNED ORDE R HAS CORRECTLY HELD THAT THE NOTICE FOR REOPENING DATED 10 FEBRUARY 2003 WAS WITHOUT JURISDICTION. 4 ITA 5016/DEL/2010 SANDEEP KUMAR VS. ITO 5.1. THE ITAT NAGPUR BENCH IN THE CASE OF M.B. TR ADERS (SUPRA) HELD AS UNDER: SECTION 19 DEALS AS QUOTED ABOVE WITH REGARD TO TI ME LIMIT FOR NOTICE. SEC. 150 DEALS WITH REGARD TO PROVISION FOR CASES WHERE ASSESSMENT IS IN PURSUANCE OF AN ORDER ON APPEAL. I N OUR CONSIDERED VIEW THERE IS NO BAR FOR ISSUING NOTICE UNDER S. 148 BY THE AO ON THE DIRECTION OF THE FIRST APPELLATE A UTHORITY. AT THE SAME TIME, REASSESSMENT PROCEEDING MUST BE BASED ON THE BELIEF OF THE AO AND NOT OF THE CIT OR APPELLATE AUTHORITY OR THAT OF THE TRIBUNAL AS HAD BEEN MEANT AND INTERPRETED FROM A PERUSAL OF S. 147 OF THE IT ACT. THE DIRECTION OF HIGHER AU THORITY SHOULD NOT BE INTERPRETED AS A BLANKET DIRECTION BY THE AO . BUT THAT SHOULD BE ACCOMPANIED BY THE DIRECT SATISFACTION OF THE AO WITH REGARD TO THE ESCAPEMENT OF INCOME. THE APPELLATE A UTHORITIES OR HIGHER AUTHORITIES CANNOT INTERFERE ON THIS POWE R OF THE AO. IT MEANS THE DIRECTION OF THE HIGHER AUTHORITIES AN D THAT OF THE APPELLATE AUTHORITIES MUST BE ACTED UPON BY THE AO WITH UTTER SATISFACTION. TAKING INITIATION OF REASSESSMENT PRO CEEDING WITHOUT SATISFACTION OF THE AO, SIMPLY ON THE BASIS OF THE BLANKET DIRECTION, WILL NOT JUSTIFY THE ACTION OF I NITIATION OF REOPENING PROCEEDING. IN THIS PARTICULAR CASE AS HA S BEEN RIGHTLY POINTED OUT BY THE LEARNED AUTHORIZED REPRE SENTATIVE FROM P. 13 OF THE PAPER BOOK FILED, THE AO HAS SIMP LY ACTED UPON, I.E., INITIATED REOPENING PROCEEDING ON THE B ASIS OF THE DIRECTION OF THE CIT(A) AND HAS TOTALLY IGNORED HIS PART OF THE JOB I.E., HIS SATISFACTION, AS IS EVIDENT FROM P. 1 3 OF THE PAPER BOOK FILED BY THE LEARNED COUNSEL WHICH IS QUOTED B ELOW FOR BETTER APPRAISAL OF FACTS : 5.2. THE ITAT AHMEDABAD BENCH IN THE CASE OF M/S HO TEL HERO (SUPRA) HELD AS UNDER: WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROU GH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM T HE ORDER OF CIT(A) IN APPEAL NO. CAB/III-226/2002-03 DATED 24-0 3-2004 5 ITA 5016/DEL/2010 SANDEEP KUMAR VS. ITO THAT CIT(A) HAS SPECIFICALLY OBSERVED, 'HOWEVER, IT WAS FURTHER OBSERVED THAT ON MERITS OF THE CASE THE APPELLANT H AS NOT FULLY DISCHARGE ITS ONUS AS MUCH AS THAT THE IDENTITY OF THE PERSONS WERE ESTABLISHED AND CONFIRMATIONS FROM THE PERSONS MAINLY PARTNERS WAS FURNISHED, MOREOVER, CREDITWORTHINESS OF THESE PARTNERS AND THE IMMEDIATE SOURCE OF MONEY IN ORDER TO CONTRIBUTE THE CAPITAL. THIS ISSUE MAY BE EXAMINED IN THE REGULAR ASSESSMENT PROCEEDINGS.' WE FIND FROM THE A BOVE OBSERVATIONS THAT IT IS A MATTER WHICH COULD HAVE B EEN CONSIDERED IN REGULAR ASSESSMENT PROCEEDINGS. WE F IND FROM THE ABOVE REASONS RECORDED, WHEREIN THE ASSESSING O FFICER USED THE WORDS 'THEREFORE' IN THE LIGHT OF THE OBSERVATI ON OF CIT(A), WHICH ITSELF PROVES THAT THE AO HAS NOT APPLIED HI S INDEPENDENT MIND BEFORE ISSUING NOTICE U/S 147 OF THE ACT. IN S IMILAR CIRCUMSTANCES, THE TRIBUNAL NAGPUR BENCH IN THE CAS E OF M. V. TRADERS V. ACIT (2010) 41 DTR 441 , (NAG) HELD THAT RE- ASSESSMENT PROCEEDINGS MUST BE BASED ON THE 'BELIEF ' OF THE ASSESSING OFFICER AND NOT THE 'BELIEF' OF THE APPEL LATE AUTHORITY, I.E. CIT(A) OR THE ITAT. HERE, IN THE PR ESENT CASE EVEN THERE IS NO DIRECTION BY CIT(A) WHICH CAN BE C ONSIDERED TO BE DIRECTION U/S 150(1) OF THE ACT. ACCORDINGLY, WE ARE OF THE VIEW THAT THE REOPENING IS BAD IN LAW AND ACCORDING LY QUASHED. 5.3. FROM THE ABOVE, IT IS EVIDENT THAT WHEN THERE IS ANY OBSERVATION/ DIRECTION BY THE CIT(A), IN REGARD TO CONSIDERATION OF SOME MATTER FOR OTHER YEAR, THE AO HAS TO APPLY HIS MIND TO THE ISSUE AND THEN ARRIVE AT HIS OWN SATISFACTION, WHETHER THE REOPENING OF COMPLETED AS SESSMENT OF ANY YEAR IS REQUIRED OR NOT. HE CANNOT REOPEN THE COMPLETED ASS ESSMENT SIMPLY ON THE BASIS OF SOME DIRECTION OR OBSERVATION OF THE CIT( A), WITHOUT RECORDING HIS OWN SATISFACTION WITH REGARD TO ESCAPEMENT OF INCOM E. 6 ITA 5016/DEL/2010 SANDEEP KUMAR VS. ITO 5.4. LET US NOW SEE THE FACTS OF THE ASSESSEES CAS E. THE COPY OF THE REASONS RECORDED FOR REOPENING OF ASSESSMENT IS PLA CED AT PAGE 27 OF THE ASSESSEES PAPER BOOK, WHICH READS AS UNDER: TO, SH. SANDE E P . KUMAR , PROP . M/S B A L AJ I TR A DING CO . . V . V . INTER COLLE GE ROAD . SH AMLI SUB : ASSESSMENT PROCEEDINGS U/S 148 OF THE I . T. ACT, 1961 FOR A. Y.2002-03 REGARDING. PL E A SE R E F E R T O Y O UR L ET T E R D A T E D 04-0 2 - 2 008 O N TH E S UBJECT CIT E D A B OV E . 2 . IN TH E A P P E LL A T E O R DE R P A S SE D B Y THE LD . C I T (A PP EA L S ) , MU Z AFF AR N A G A R DA T E D 0 5-10 - 20 0 6 FO R A. Y . 2 00 3 - 04 T H E LD. A PPELL A TE A U T H O RIT Y W HIL E DE L E TIN G TH E A DDIT IO N M A DE A T R S. 5 . 4 0 , 4 75 / - O B S ER VE D TH AT ' S INCE LIABILITI ES ARE BROU G HT FORWARDED FROM EARLIER Y E AR S FOR W HICH TH E APPELLANT HAS ALR E AD Y FIL E D RETURN OF INCOM E, N O ADDITI O N R E QU I R E D IN THIS Y EAR, HO WEV ER , R E MEDIAL ACTION SHOULD BE TAKEN BY TH E A 0 I N THE RE S P E CTIVE YE AR S WHER E LIABILITIES HAVE BE E N C R E ATED FOR TH E FIR S T TIM E IN THE HOOK S OF THE ASSESSEE APPELLANT . ' IN TH E CASE OF B A N SA L P O L YVI N (P) LTD . SAMAN A A ND M/S EK O NK A R FO UND RY , HAR AYA N A LI A BILIT Y TO T ALING TO RS.5 , 40,175/- - W AS CRE A T E D F O R THE FI R S T T IM E DURIN G TH E FIN A NC IA L YE AR 2001-02 RELE V ANT TO A . Y . 2 0 02 -0 3 . THEREFORE, , O N THE B ASIS OF A B OV E R E FERRED OB S ER V ATIONS MADE , I H A VE RE ASO N T O BELI EVE TH AT IN C O ME TO THE EXTENT O F R S. 5 , 40 , 175/- HAD E S CAP ED A S SES S M E NT . AC TI O N U / S 1 4 7 FOR A . Y . 2 002-0 3 WAS INITIALED B Y WA Y OF IS S UE OF N O T I C E U / S 1 48 D A TED 7-01-2008 AFT E R OBTAINING PRIOR APPRO VA L O F T HE LD. ADDI . C I T , R A N GE -MUZAFFARNAGAR . (OM PRAKASHI) INC O M E TAX OFFIC E R , WARD-I . SHAML I 5.5. FROM THE ABOVE IT IS EVIDENT THAT THE AO REPRO DUCED THE OBSERVATION OF THE CIT(A) AND THEREAFTER HAS RECORDED THAT THER E IS A CREDIT BALANCE IN THE ACCOUNT OF BANSAL POLYVIN (P) LTD.; AND M/S EK ONKA R FOUNDRY, AMOUNTING 7 ITA 5016/DEL/2010 SANDEEP KUMAR VS. ITO TO RS. 5,40,175/-, WHICH WAS CREATED FOR THE FIRST TIME DURING THE FY 2001-02 RELEVANT TO AY 2002-03. THEREAFTER, HE RECORDED THE FINDING THAT- THEREFORE, ON THE BASIS OF ABOVE REFERRED OBSERVAT IONS MADE, I HAVE REASON TO BELIEVE THAT INCOME TO THE EXTENT OF RS. 5,40,17 5/- HAD ESCAPED ASSESSMENT. THUS, IT IS EVIDENT THAT THE ASSESSMEN T HAD BEEN REOPENED ON THE BASIS OF OBSERVATIONS OF THE LD. CIT(A) AND THE CLAIM OF THE LD. DR THAT THE AO HAD APPLIED HIS MIND INDEPENDENTLY, IS NOT C ORRECT. THE AO HAS SIMPLY FOUND THAT THERE IS CREDIT BALANCE IN THE AC COUNT OF TWO PARTIES DURING THE FINANCIAL YEAR, RELEVANT TO AY 2002-03. THE CRE DIT BALANCE ITSELF CANNOT BE A GROUND TO ARRIVE AT THE CONCLUSION OF ESCAPEME NT OF INCOME. IN VIEW OF ABOVE, IN OUR OPINION, THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF M/S TEJASKIRAN PHARMACHEM INDUSTRIES PVT. L TD. (SUPRA); ORDER OF ITAT NAGPUR BENCH IN THE CASE OF M.B. TRADERS (SU PRA); AND ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF M/S HOTEL HERO (SUPRA), WOULD BE SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE IMPUGNED REOPE NING OF ASSESSMENT WAS NOT VALID. ACCORDINGLY, WE QUASH THE ISSUE OF NOTIC E U/S 148 AND CONSEQUENTLY THE ASSESSMENT ORDER PASSED IN PURSUAN CE TO SUCH NOTICE IS ALSO QUASHED. 8 ITA 5016/DEL/2010 SANDEEP KUMAR VS. ITO 6. IN THE OTHER GROUNDS OF APPEAL, THE ASSESSEE HAS CHALLENGED THE ADDITION MADE IN THE REOPENED ASSESSMENT. SINCE WE HAVE ALREADY QUASHED THE ASSESSMENT ORDER, THE OTHER GROUNDS IN THE ASSE SSEES APPEAL DO NOT SURVIVE FOR FURTHER ADJUDICATION. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED, AS ABOVE. ORDER PRONOUNCED IN OPEN COURT ON 02/03/2015.. SD/- SD/- ( GEORGE GEORGE K. ) ( G.D. AGRAWAL) JUDICIAL MEMBER VICE PRESIDENT DATED: 02/03/2015. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.