M/s. Pragati Vanijya Ltd., New Delhi V. ACIT, New Delhi

ITA 5096/DEL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2664 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 09-05-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 15-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEDOBANI
• Keywords: Reopening of assessment; Bogus Share capital; Question of law; Accommodation entries; Onus to prove; Reason to believe; Reassessment proceedings
• Section: 143(3); 147; 131; 148; 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC NEW DELHI BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER ITA NO. 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANI J YA LTD. 129, TRANSPORT CENTRE ROHTAK ROAD NEW DELHI 110 029 PAN: AAACP 1685 P VS ACIT CIRCLE 14(1) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SH. SANAT KAPOOR, ADV . RESPONDENT BY MS. BEDOBANI, SR.DR DATE OF HEARING 0 9 .05.2017 DATE OF PRONOUNCEMENT 31 .0 7 .2017 ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 27.06.2014 OF THE LD.CIT(A)-XVII, NEW D ELHI RELATING TO ASSESSMENT YEAR (A.Y.) 2003-04. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PROVIDING LOANS AND ADVANCES AND INTER CORPORATE DEPOSITS. THE ORIGINA L RETURN OF INCOME WAS FILED ON 5.11.2003 DECLARING A TOTAL I NCOME OF ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 2 RS.29,99,190/-. SUBSEQUENTLY THE ASSESSING OFFICER (AO) INITIATED PROCEEDINGS UNDER SECTION 147 OF THE INCO ME TAX ACT, 1961 (THE ACT) FOR THE IMPUGNED ASSESSMENT YEAR BY RECORDING THE FOLLOWING REASONS. PLEASE REFER TO YOUR LETTER DT. 16.4.2010 ASKING F OR THE REASONS FOR ISSUE OF NOTICE U/S 148 OF THE IT ACT, 1961. AS DESIRED, THE REASONS RECORDED FOR THIS PURPOSE ARE REPRODUCED BELOW. RETURN OF INCOME WAS FILED ON 5.11.2003 DECLARING TOTAL INCOME OF RS.29,99,190/- WHICH WAS PROCESSED U/S 14 3(1) ON 30.01.2004. INFORMATION WAS RECEIVED FROM THE DIT (INVESTIGATIO N) THAT CERTAIN PERSONS WERE INDULGED IN PROVIDING ACCOMMOD ATION ENTRIES/BOGUS SHARE APPLICATION MONEY/BOGUS CAPITAL GAINS. IN THE COURSE OF ENQUIRIES BEFORE INVESTIGATION WIN G THESE PERSONS HAD PROVIDED THE DETAILS OF VARIOUS PERSONS TO WHOM SUCH ACCOMMODATION/BOGUS ENTRIES WERE PROVIDED . BASED ON THE ENQUIRIES MADE, THE DIT HAS PROVIDED D ETAILS OF PERSONS WHOM WERE BENEFICIARY/ENTRY OPERATORS OF SUCH ACCOMMODATION/BOGUS ENTRIES IN DELHI IN THE LAST 5- 6 YEARS. THE INVESTIGATION WING ON THE BASIS OF ENQUIRIES CONDUCTED/INFORMATION COLLECTED HAS SENT THE NAME A ND ADDRESS OF THE BANK ACCOUNTS OF THE BENEFICIARY AND THE VALUE OF ENTRY TAKEN FROM DIFFERENT PERSONS GIVING THE ACCOMMODATION ENTRY. THE NAME OF ENTRY GIVER AND B ANK ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 3 ACCOUNTS THROUGH WHICH THE ENTRY WAS GIVEN HAS ALSO BEEN INFORMED BY THE INVESTIGATION WING. ONE SUCH BENEF ICIARY IS M/S PRAGATI VANIJAYA LTD. AS PER THE REPORT OF INVESTIGATION WING, M/S PRAGAT I VANIJAYA LTD. HAS RECEIVED ACCOMMODATION ENTRY AMOU NTING TO RS.11,25,000/- IN THE FY 2002-03 RELEVANT TO ASS ESSMENT YEAR 2003-04 UNDER THE GARB OF SHARE APPLICATION MONEY/SHARE CAPITAL THE DETAILS OF WHICH ARE AS UN DER. BENEFICIARY NAME BENEFICIAR Y BANK NAME BENEFICIARY BANK BRANCH VALUE OF ENTRY TAKEN INSTRUMENT NO. BY WHICH ENTRY TAKEN DATE ON WHICH ENTRY TAKEN NAME OF ACCOUNT HODLER OF ENTRY GIVING ACCOUNT BANK FROM WHICH ENTRY GIVEN BRANCH OF ENTRY GIVING BANK A/C NO. OF ENTRY GIVING ACCOUNT PRAGATI VANIJAYA LTD. SYNDICATE BANK DEV NAGAR 625000 141952 13.4.02 TULIP ENGG. P. LTD. CORPN BANK PASCHIM BIHAR 52174 PRAGATI VANIJAYA LTD. SYNDICATE BANK DEV NAGAR 500000 141953 13.4.02 TULIP ENGG. P. LTD. CORPN BANK PASCHIM BIHAR 52174 IN VIEW OF THE ABOVE, I HAVE REASONS TO BELIEVE THA T ON ACCOUNT OF FAILURE ON THE PART OF THE ASSESSEE TO D ISCLOSE TRULY AND FULLY ALL THE MATERIAL FACTS NECESSARY FO R ASSESSMENT FOR THE ABOVE A.Y. THE INCOME CHARGEABLE TO TAX TO THE EXTENT OF ACCOMMODATION ENTRY AMOUNTING TO RS.11,25,000/- HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF S.147 OF THE ACT. 2.1. IN RESPONSE TO THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT THE ASSESSEE FILED A LETTER ON 18TH APRIL,2010 STATING THAT THE RETURN ORIGINALLY FILED ON 5.11.2003 MAY BE TRE ATED AS RETURN ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 4 IN RESPONSE TO THE NOTICE UNDER SECTION 148 OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERV ED THAT THE ASSESSEE HAS TAKEN ACCOMMODATION ENTRY OF RS.11,25 ,000/- FROM ONE M/S TULIP ENGINEERING PRIVATE LIMITED IN THE GARB OF SHARE APPLICATION MONEY/ SHARE CAPITAL. HE, THEREF ORE, ASKED THE ASSESSEE TO FURNISH DETAILS IN RESPECT OF SHAR E APPLICATION/ SHARE CAPITAL RECEIVED FROM M/S TULIP ENGINEERING P RIVATE LIMITED. THE ASSESSEE FURNISHED CONFIRMATION FROM ONE MR.RAGHUBIR SINGH, AUTHORISED SIGNATORY/DIRECTOR O F M/S TULIP ENGINEERING PRIVATE LIMITED, COPY OF ITR AND BALANCE SHEET OF M/S TULIP ENGINEERING PRIVATE LIMITED FO R THE A.Y. 2003-04 AND 2004-05. IT WAS FURTHER SUBMITTED THAT THE AMOUNT HAS BEEN RECEIVED THROUGH CHEQUE. 2.2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE TO PRODUCE THE SHARE APPLICANT FOR HIS EXAMINATION. INSTEAD OF PRODUCING THE DIRECTOR OR PRINCIPAL OFFICER OF THE APPLICANT COMPANY, THE ASSESSEE FIL ED AN AFFIDAVIT OF SHRI RAGHUBIR SINGH, DIRECTOR OF M/S TULIP ENGI NEERING PRIVATE LIMITED. IT WAS SUBMITTED THAT THERE IS NO BINDING PROVISION IN ANY LAW BY WHICH THEY CAN ENFORCE THE PRESENCE OF ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 5 DIRECTOR OF M/S TULIP ENGINEERING PRIVATE LIMITED. IT WAS SUBMITTED THAT THE AO CAN CALL FOR ANY INFORMATION FROM HIM DIRECTLY. THE AO OBSERVED THAT NOTICE UNDER SECTI ON 131 OF THE ACT WAS ISSUED TO DIRECTOR OF M/S TULIP ENGINEERIN G PRIVATE LIMITED WHICH WAS SENT TO HIM AS PER ADDRESS GIVE N BY THE ASSESSEE. BUT THE NOTICE COULD NOT BE SERVED THR OUGH THE INSPECTOR FOR WHICH THE NOTICE WAS SERVED THROUGH A FFIXTURE. HOWEVER, NONE APPEARED ON THAT DATE. THIS WAS AGAI N CONFRONTED TO THE ASSESSEE. HOWEVER, THE ASSESSEE EXPRESSED ITS INABILITY AND SUBMITTED THAT THEY HAVE ALREADY GIV EN THE ADDRESS OF THE COMPANY AND AFFIDAVIT AND CONFIRMATI ON OF THE DIRECTOR IN SUPPORT OF THEIR CLAIM. THE RELEVANT I NFORMATION WAS ALSO FURNISHED. 2.3 . HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLA NATION GIVEN BY THE ASSESSEE IN VIEW OF THE NON PRODUCTION OF THE DIRECTOR OF THE SHARE APPLICANT COMPANY AND MADE AD DITION OF RS.11,25,000/- U/S 68 OF THE I.T. ACT, 1961 AS UNEX PLAINED CASH CREDIT. 3. BEFORE THE LD.CIT(A) APART FROM CHALLENGING THE ADDITION ON MERITS THE ASSESSEE ALSO CHALLENGED THE VALIDI TY OF THE ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 6 REOPENING OF ASSESSMENT PROCEEDINGS. BASED ON VARI OUS DOCUMENTS FILED BY THE ASSESSEE THE LD.CIT(A) CALLE D FOR REMAND REPORT FROM THE AO. AFTER CONFRONTING THE SAME THE LD.CIT(A) UPHELD THE VALIDITY OF THE RE-ASSESSMENT PROCEEDING S AS WELL AS THE ADDITION OF RS.11,25,000/- MADE BY THE AO. SO FAR AS THE VALIDITY OF THE RE-ASSESSMENT PROCEEDINGS ARE CONCE RNED, THE LD.CIT(A) HELD THAT THERE ARE SUFFICIENT REASONS FO R THE AO TO BELIEVE THAT THE INCOME HAD ESCAPED ASSESSMENT FOR WHICH PROCEEDINGS WERE INITIATED AFTER RECORDING REASONS. RELYING ON VARIOUS DECISIONS, HE HELD THAT IT HAS BEEN CLEARL Y HELD THAT FORMATION OF BELIEF BY THE ASSESSING OFFICER IS WIT HIN THE REALM OF SUBJECTIVE SATISFACTION AND IT IS NOT NECESSARY FOR THE AO TO CONCLUSIVELY PROVE THE ESCAPEMENT OF INCOME BEFORE INITIATING PROCEEDINGS UNDER SECTION 147 OF THE ACT. ACCORDIN GLY HE HELD THAT THE AO HAD REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT AND HE WAS WITHIN HIS COMPETENCE TO INVO KE THE POWERS CONTAINED IN SECTION 147 TO INITIATE REASSES SMENT OF THE INCOME OF THE ASSESSEE. 4. SO FAR AS THE ADDITIONS SUSTAINED BY HIM ON MERIT IS CONCERNED, HE OBSERVED THAT THE ENQUIRIES CONDUCT ED BY THE ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 7 AO ESTABLISHES THE FACT THAT IDENTITY AND CREDIT WO RTHINESS OF THE COMPANY WAS NOT PROVED AND THE GENUINENESS OF THE TRANSACTION WAS ALSO NOT ESTABLISHED. DESPITE ISSU E OF SUMMONS NOBODY APPEARED PUTTING DOUBT ON THEIR IDE NTITY. AT NO POINT OF TIME THE APPELLANT WAS ABLE TO PRODUCE ANY PERSON FROM M/S TULIP ENGINEERING PRIVATE LIMITED. THE A SSESSEE HAS CLEARLY FAILED TO DISCHARGE THE ONUS CAST ON HIM. HE FURTHER OBSERVED THAT THE INCOME OF M/S TULIP ENGINEERING P RIVATE LIMITED WAS ONLY RS.231/-, THE BANK ACCOUNT PRODUC ED BY ASSESSEE SHOWS THAT THE OPENING BALANCE WAS ALSO NO T SUBSTANTIVE. ON 27.3.2002 RS.45 LAKHS WAS DEPOSITE D AND WITHDRAWN ON THE SAME DAY, ON 31.3.2002 RS.2,70,000 /- AND RS.4,30,000 WAS DEPOSITED AND RS.6,70,000/- WITHDRA WN ON THE SAME DAY. THIS KIND OF TRANSACTION IS INDICATIVE O F TYPICAL TRAITS OF ENTRY OPERATORS. IN VIEW OF THE ABOVE AND IN A BSENCE OF INABILITY OF THE ASSESSEE TO PRODUCE THE SHARE APP LICANT TO PROVE THE IDENTITY, GENUINENESS AND CREDITWORTHINESS, HE HELD THAT THE ACTION OF THE AO IN MAKING THE ADDITION IS JUS TIFIED. 5. AGGRIEVED WITH SUCH ORDER OF THE LD.CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE FOLLOWING GR OUNDS. ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 8 1. THAT THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE NOTICE ISSUED AND THE SUBSEQUENT PROC EEDINGS U/S 148 . THE NOTICE ISSUED U/S 148 IS ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION AND THE SUBSEQUENT ORDER P ASSED U/S 143(3) AND 147 IS ALSO ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION. 2. THAT THE NOTICE U/S 148 HAS BEEN ISSUED/SIGNED WITHOUT RECORDING REASONS AS REQUIRED UNDER THE LAW ; HENCE THE NOTICE U/S 148 IS ILLEGAL, BAD IN LAW AND WITH OUT JURISDICTION. 3. THAT THE CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN UPHOLDING THE ISSUANCE OF NOTICE U/S 148; DESPI TE THE FACT THAT THE AO MECHANICALLY AND WITHOUT APPLICATI ON OF MIND INCORPORATED THE INFORMATION RECEIVED FROM INVESTIGATION WING AS REASONS FOR ISSUE OF A NOTICE U/S 148. FURTHER, THE REASONS RECORDED ARE FACTUALLY INCORR ECT. VAGUE AND BASED ON SURMISES AND CONJECTURES AND GUESSWORK . 4. THAT THE CIT (A) FAILED TO CONSIDER THAT THE APP ELLANT WAS NOT CONFRONTED WITH AND SUPPLIED THE REPORT IN RESPECT OF AFFIXTURE OF NOTICE U/S 131 OF THE INCOME TAX AC T, 1961 AND IT IS NOT A VALID SERVICE. 5. THAT THE CIT(A) HAS IN VIEW OF THE FACTS AND CIR CUM LANCES OF THE CASE ERRED ON FACTS AND IN LAW IN UPH OLDING THE IMPUGNED ASSESSMENT U/S 143(3) /147 DATED 23.12.201 2 ASSESSING THE INCOME AT RS 41,24.190/-. 6. THAT THE CITCA) HAS IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE ERRED ON FACTS AND IN LAW IN UPHOLDING THE ADDITION OF RS.11.25.000/- ON ACCOUNT OF SHARE APPLICATION MONEY RECEIVED DURING THE YEAR. 7. THAT THE CITCA) HAS FAILED TO APPRECIATE THAT TH E REPORT OF THE INSPECTOR WAS NEVER CONFRONTED TO THE ASSESS EE AND HE WAS NOT ALLOWED TO BE CROSS EXAMINED; HENCE THE ADDITION MADE ON THE BASIS OF SAID REPORT IS ILLEGA L AND BAD IN LAW. ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 9 8. THAT THE CIT(A) HAS GROSSLY ERRED IN IGNORING AN D MISINTERPRETING THE IMPORTANT FACTS OF THE STAND TA KEN BY THE ASSESSEE QUA THE AMOUNT OF RS.11,25,000/- AND THE C IT(A) ALSO ERRED IN IGNORING THE WELL SETTLED POSITION OF LAW ON THE ISSUE. 9. THAT THE CIT(A) HAS GROSSLY. ERRED IN UPHOLDING THE ADDITIONS NOTWITHSTANDING THE FACT THAT THE ASSESSE E HAS DISCHARGED ITS BURDEN OF PROOF U/S 68 OF THE ACT. 10. THAT THE CIT(A) HAS GROSSLY ERRED IN IGNORING A ND MISINTERPRETING THE FACTS AVAILABLE ON RECORD AND H AS PASSED THE ORDER BASED ON GUESSWORK AND SURMISES AN D CONJECTURES. 11. THAT THE VARIOUS OBSERVATIONS MADE BY THE CIT(A ) IN THE APPELLATE ORDER ARE ILLEGAL, CONTRARY TO FACTS ON RECORD AND BASED ON SURMISES AND CONJECTURES. 12. THAT THE EVIDENCE AND EXPLANATION GIVEN BY THE APPELLANT AND THE MATERIAL AVAILABLE ON RECORD HAVE NOT BEEN PROPERLY CONSIDERED AND JUDICIOUSLY INTERPRETE D. 13. THAT THE ADDITIONS HAVE BEEN MADE ON BASIS OF M ERE CONJECTURES AND CONTRARY TO FACTS AND EVIDENCE ON R ECORD JUSTIFIED BY ANY MATERIAL ON RECORD. 6. THE LD.COUNSEL FOR THE ASSESSEE REFERRING TO THE NO TICE U/S 148 OF THE ACT ISSUED BY THE A.O. SUBMITTED THAT TH ERE IS NO INDEPENDENT APPLICATION OF MIND BY THE AO WHILE RE CORDING REASONS AND HE HAS REOPENED THE ASSESSMENT ONLY ON THE BASIS OF INFORMATION RECEIVED FROM THE INVESTIGATION WING . REFERRING TO THE DECISION OF HONORABLE DELHI HIGH COURT IN THE C ASE OF PRINCIPAL CIT VS G&G PHARMA INDIA LIMITED REPORTED IN 384 ITR ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 10 147 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT IN ABSENCE OF ANY INDEPENDEN T APPLICATION OF MIND BY THE ASSESSING OFFICER, ASSES SMENT CANNOT BE RE-OPENED ON THE BASIS OF INFORMATION RECEIVED F ROM DIRECTORATE OF INVESTIGATION. 6.1. REFERRING TO THE DECISION OF HONBLE DELHI HIGH CO URT IN THE CASE OF SIGNATURE HOTELS P.LTD. VS. ITO REPORTED IN 338 ITR 51 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAI D DECISION HAS HELD THAT INFORMATION RECEIVED FROM THE DIT (IN V.) THAT AMOUNT RECEIVED BY THE ASSESSEE FROM OTHER COMPANY WAS NOTHING BUT ACCOMMODATION ENTRY, BUT THE ASSESSEE WAS BENEFICIARY WAS NOT SUFFICIENT TO REOPEN THE ASSESS MENT WHEN THE AO DID NOT APPLY HIS OWN MIND TO THE INFORMATIO N RECEIVED. 6.2 . REFERRING TO THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SONIA CHOWDHRY VS. ITO IN ITA NOS. 2036 AND 2037/DEL/10 ORDER DT. 7 TH OCTOBER, 2016 FOR THE ASSESSMENT YEAR 2002-03 AND 2003-04 HE SUBMITTED TH AT FOLLOWING THE ABOVE TWO DECISIONS THE TRIBUNAL HAS QUASHED THE REASSESSMENT PROCEEDINGS. HE ACCORDINGLY SUBMITTED THAT THIS BEING A COVERED MATTER IN FAVOUR OF THE ASSESSEE BY THE ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 11 DECISIONS OF JURISDICTIONAL HIGH COURT AS WELL AS T HE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL THE RE-OPENING PROCEEDINGS SHOULD BE DECLARED AS NULL AND VOID. 6.3. SO FAR AS THE MERIT OF THE CASE IS CONCERNED, HE SU BMITTED THAT THE ASSESSEE HAS FILED FULL DETAILS TO PROVE T HE IDENTITY, GENUINENESS AND CREDIT WORTHINESS OF THE PAYER. TH E ASSESSEE HAD GIVEN THE ADDRESS OF THE SHARE APPLICANT COMPAN Y. THE AO COULD HAVE INDEPENDENTLY SUMMONED AND RECORDED THE STATEMENT OF THE DIRECTOR OF THE SHARE APPLICANT CO MPANY, WHICH HE FAILED TO DO. HE ACCORDINGLY SUBMITTED THAT THE ADDITION ON MERIT ALSO SHOULD BE DELETED. 7. THE LD.D.R. ON THE OTHER HAND STRONGLY SUPPORTED TH E ORDER OF THE LD.CIT(A). REFERRING TO VARIOUS DECIS IONS SHE SUBMITTED THAT CERTIFICATE OF INCORPORATION, PAN ET C. ARE NOT SUFFICIENT FOR THE PURPOSE OF IDENTIFICATION OF THE SHARE HOLDER WHEN THERE IS MATERIAL TO SHOW THAT THE SHARE HOLDE R WAS A PAPER COMPANY AND NOT A GENUINE INVESTOR. RELYING ON VARIOUS DECISIONS, THE LD. DR SUBMITTED THAT THE ORDER OF T HE LD.CIT(A) BE UPHELD ON BOTH THE ISSUES. ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 12 8. THE LD.COUNSEL FOR THE ASSESSEE IN HIS REJOINDER SUBMITTED THAT UNDER IDENTICAL FACTS THE LD.CIT(A) HAS ACCEPTED RS.11,25,000/- RECEIVED AS SHARE APPLICATION MONEY FROM THE SAID COMPANY IN THE PRECEDING YEAR AND THE REVENUE IS NOT IN APPEAL. 9 . I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. I FIN D THE A.O. ON THE BASIS OF INFORMATION RECEIVED FROM THE INVESTIG ATION WING OF THE DEPARTMENT THAT THE ASSESSEE HAS RECEIVED BOGUS SHARE APPLICATION MONEY, REOPENED THE ASSESSMENT UNDER S ECTION 147 BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT. D URING THE COURSE OF ASSESSMENT PROCEEDINGS DESPITE ISSUE OF S UMMONS NONE APPEARED ON BEHALF OF THE SHARE APPLICANT COM PANY AND ONLY A CONFIRMATION WAS FILED BY THE SAID COMPANY. DESPITE OPPORTUNITY GIVEN BY THE AO THE ASSESSEE ALSO DID N OT PRODUCE THE DIRECTOR OF THE SAID SHARE APPLICANT COMPANY FO R WHICH AO MADE ADDITION OF RS.11,25,000/- TO THE TOTAL INCOM E OF THE ASSESSEE UNDER SECTION 68 OF THE ACT. ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 13 9.1. I FIND BEFORE THE LD.CIT(A) THE ASSESSEE TOOK A GR OUND THAT THE REASSESSMENT PROCEEDINGS INITIATED BY THE AO IS VOID AB INITIO SINCE THE AO HAS NOT APPLIED HIS MIND INDEP ENDENTLY AND ONLY ON THE BASIS OF INFORMATION RECEIVED FROM THE INVESTIGATION WING ISSUED NOTICE UNDER SECTION 148 OF THE ACT. I FIND THE LD.CIT(A) UPHELD THE ORDER OF THE AO AND DISMISSED THE APPEAL FILED BY THE ASSESSEE ON BOTH THE GROUNDS. IT IS THE SUBMISSION OF THE LD.COUNSEL FOR THE ASSESSEE THAT IN VIEW OF THE DECISIONS OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF G&G PHARMA INDIA LIMITED (SUPRA) AND SIGNATURE HOTELS PRIVATE LIMITED (SUPRA), THE REOPENING OF ASSESSMENT IS VOID AB IN ITIO SINCE THE AO DID NOT APPLY HIS OWN MIND TO THE INFORMATION R ECEIVED FROM THE INVESTIGATION WING THAT AMOUNT RECEIVED BY THE ASSESSEE FROM THE OTHER COMPANY WAS NOTHING BUT AN ACCOMMODA TION ENTRY AND THE ASSESSEE IS A BENEFICIARY. IT IS TH E SUBMISSION OF THE LD.DR THAT THE MATERIAL FROM THE INVESTIGATION WING CONSTITUTES MATERIAL AND REOPENING ON THE BASIS OF SUCH INFORMATION FROM THE INVESTIGATION WING HAS TO BE CONSTITUTED AS VALID INFORMATION FOR REOPENING OF ASSESSMENT. ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 14 9.2. I FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE HONBLE DELHI HIGH COURT IN THE CASE OF PR.CIT VS. G&G PHAR MA (SUPRA) WHEREIN THE HONBLE HIGH COURT HAD QUASHED THE REASSESSMENT PROCEEDINGS INITIATED ON THE BASIS OF INFORMATION OBTAINED FROM THE INVESTIGATION WING ON THE GROUND THAT AO HAS NOT APPLIED HIS MIND TO THE MATERIAL BEFORE HIM TO PROVE THAT HE HAD REASONS TO BELIEVE THAT INCOME HAD ESCAPED FROM ASSESSMENT. THE RELEVANT OBSERVATION FROM PARA 12 TO 15 IS AS UNDER. 12. IN THE PRESENT CASE, AFTER SETTING OUT FOUR E NTRIES, STATED TO HAVE BEEN RECEIVED BY THE ASSESSEE ON A S INGLE DATE I.E. 10TH FEBRUARY 2003, FROM FOUR ENTITIES WH ICH 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 UNDE RSTANDING WHETHER THE AO APPLIED HIS MIND TO THE MATERIALS TH AT HE TALKS ABOUT PARTICULARLY SINCE HE DID NOT DESCRIBE WHAT THOSE MATERIALS WERE. ONCE THE DATE ON WHICH THE SO CALLED ACCOMMODATION ENTRIES WERE PROVIDED IS KNOWN, IT WO ULD ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 15 NOT HAVE BEEN DIFFICULT FOR THE AO, IF HE HAD IN FA CT UNDERTAKEN THE EXERCISE, TO MAKE A REFERENCE TO THE MANNER IN WHICH THOSE VERY ENTRIES WERE PROVIDED IN THE AC COUNTS OF THE ASSESSEE, WHICH MUST HAVE BEEN TENDERED ALONG W ITH THE RETURN, WHICH WAS FILED ON 14TH NOVEMBER 2004 A ND WAS PROCESSED UNDER SECTION 143(3) OF THE ACT. WITH OUT FORMING A PRIMA FACIE OPINION, ON THE BASIS OF SUCH MATERIAL, IT WAS NOT POSSIBLE FOR THE AO TO HAVE SIMPLY CONCL UDED: 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 SUFFICIEN T CLARITY BY THE SUPREME COURT IN THE DECISIONS DISCUSSED HEREIN BEFORE, THE BASIC REQUIREMENT THAT THE AO MUST APPLY HIS MI ND TO THE MATERIALS IN ORDER TO HAVE REASONS TO BELIEVE T HAT THE INCOME OF THE ASSESSEE ESCAPED ASSESSMENT IS MISSIN G IN THE PRESENT CASE. 13. MR.SAWHNEY TOOK THE COURT THROUGH THE ORDER OF THE CIT(A) TO SHOW HOW THE CIT(A) DISCUSSED THE MATERIA LS PRODUCED DURING THE HEARING OF THE APPEAL. THE COU RT WOULD LIKE TO OBSERVE THAT THIS IS IN THE NATURE OF A PO ST MORTEM EXERCISE AFTER THE EVENT OF REOPENING OF THE ASSESS MENT HAS TAKEN PLACE. WHILE THE CIT(A) MAY HAVE PROCEEDED ON THE BASIS THAT THE REOPENING OF THE ASSESSMENT WAS VALI D, THIS DOES NOT SATISFY THE REQUIREMENT OF LAW THAT PRIOR TO THE REOPENING OF THE ASSESSMENT, THE AO HAS TO, APPLYIN G HIS ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 16 MIND TO THE MATERIALS, CONCLUDE THAT HE HAS REASON TO BELIEVE THAT INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. UNLESS THAT BASIC JURISDICTIONAL REQUIR EMENT IS SATISFIED A POST MORTEM EXERCISE OF ANALYSING MATER IALS PRODUCED SUBSEQUENT TO THE REOPENING WILL NOT RESCU E AN INHERENTLY DEFECTIVE REOPENING ORDER FROM INVALIDIT Y. 14. IN THE CIRCUMSTANCES, THE CONCLUSION REACHED BY THE ITAT CANNOT BE SAID TO BE ERRONEOUS. NO SUBSTANTIA L QUESTION OF LAW ARISES. 15. THE APPEAL IS DISMISSED. 9.3. I FIND THE HONBLE DELHI HIGH COURT IN THE CASE OF SIGNATURE HOTELS LTD. (SUPRA) HAS ALSO TAKEN SIMILAR VIEW. T HE RELEVANT OBSERVATION OF HONBLE HIGH COURT FROM PARA 14 ONWA RDS READ AS UNDER. 14. THE FIRST SENTENCE OF THE REASONS STATES THAT INFORMATION HAD BEEN RECEIVED FROM DIRECTOR OF INCO ME-TAX (INVESTIGATION) THAT THE PETITIONER HAD INTRODUCED MONEY AMOUNTING TO RS.5 LACS DURING FINANCIAL YEAR 2002-0 3 AS PER THE DETAILS GIVEN IN W.P. (C) NO. 8067/2010 PAGE 12 ANNEXURE. THE SAID ANNEXURE, REPRODUCED ABOVE, RELA TES TO A CHEQUE RECEIVED BY THE PETITIONER ON 9TH OCTOBER, 2002 FROM SWETU STONE PV FROM THE BANK AND THE ACCOUNT N UMBER MENTIONED THEREIN. THE LAST SENTENCE RECORDS THAT A S PER THE INFORMATION, THE AMOUNT RECEIVED WAS NOTHING BUT AN ACCOMMODATION ENTRY AND THE ASSESSEE WAS THE BENEFI CIARY. 15. THE AFORESAID REASONS DO NOT SATISFY THE REQUIR EMENTS OF SECTION 147 OF THE ACT. THE REASONS AND THE INFORMA TION ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 17 REFERRED TO IS EXTREMELY SCANTY AND VAGUE. THERE IS NO REFERENCE TO ANY DOCUMENT OR STATEMENT, EXCEPT ANNE XURE, WHICH HAS BEEN QUOTED ABOVE. ANNEXURE CANNOT BE REGARDED AS A MATERIAL OR EVIDENCE THAT PRIMA FACIE SHOWS OR ESTABLISHES NEXUS OR LINK WHICH DISCLOSES ESCAPE MENT OF INCOME. ANNEXURE IS NOT A POINTER AND DOES NOT INDI CATE ESCAPEMENT OF INCOME. FURTHER, IT IS APPARENT THAT THE ASSESSING OFFICER DID NOT APPLY HIS OWN MIND TO THE INFORMATION AND EXAMINE THE BASIS AND MATERIAL OF T HE INFORMATION. THE ASSESSING OFFICER ACCEPTED THE PLE A ON THE BASIS OF VAGUE INFORMATION IN A MECHANICAL MANNER. THE COMMISSIONER ALSO ACTED ON THE SAME BASIS BY MECHANICALLY GIVING HIS APPROVAL. THE REASONS RECOR DED REFLECT THAT THE ASSESSING OFFICER DID NOT INDEPEND ENTLY APPLY HIS MIND TO THE W.P. (C) NO. 8067/2010 PAGE 1 3 INFORMATION RECEIVED FROM THE DIRECTOR OF INCOME-TA X (INVESTIGATION) AND ARRIVE AT A BELIEF WHETHER OR N OT ANY INCOME HAD ESCAPED ASSESSMENT. 16. IT MAY BE NOTED HERE THAT A COMPANY BY THE NAME OF SWETU STONE PVT. LTD. HAD APPLIED FOR AND WAS ALLOT TED SHARES IN THE PETITIONER COMPANY ON PAYMENT BY CHEQ UE OF RS.5 LACS. AS NOTICED ABOVE, IN THE ANNEXURE THE NA ME OF THE COMPANY/ACCOUNT HOLDER IS MENTIONED AS SWETU ST ONE PV. THE SAME IS ALSO MENTIONED IN THE UNDATED REASO NS MENTIONED ABOVE. 17. IN THE COUNTER AFFIDAVIT IT IS STATED THAT M/S SWETU STONE PVT. LTD. HAD APPLIED FOR ALLOTMENT OF SHARES WORTH RS.5 LACS AND THE SAME WERE ALLOTTED BY THE PETITIONER. IT IS FURTHER STATED THAT STATEMENTS OF MAHESH GARG AND SHUBHASH GUPTA WERE RECORDED BY THE DIRECTOR OF INCOME-TAX (INVESTIGATION) AND ON THE BASIS OF THE STATEMENTS THEY HAVE COME TO THE CONCLUSION THAT THE SAID PERSONS WERE E NTRY OPERATORS. COPY OF THE STATEMENTS OF MAHESH GARG AN D SHUBHASH GUPTA HAVE NOT BEEN PLACED ON RECORD BY TH E ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 18 RESPONDENT. THE PETITIONER, HAS, HOWEVER, ENCLOSED COPY OF STATEMENTS OF MAHESH GARG AND SHUBHASH GUPTA RECORD ED ON DIFFERENT DATES. THE SAID PERSONS W.P. (C) NO. 8067/2010 PAGE 14 HAVE NOT SPECIFICALLY NAMED THE PETITIONER THOUGH OTHER PARTIES HAVE BEEN NAMED AND DETAILS HAVE BEEN GIVEN AND IT IS STATED THAT THEY WERE PRO VIDED ACCOMMODATION ENTRIES. HOWEVER, IT IS STATED THAT T HE ENTRIES WERE MADE BY GIVING CHEQUE/DD/PO AFTER RECE IVING CASH AND SOMETIMES EXPENSES ENTRIES WERE PROVIDED. THE REASONS RECORDED BY THE ASSESSING OFFICER DO NOT MA KE REFERENCE TO ANY STATEMENT OF MAHESH GARG OR SHUBHA SH GUPTA. THIS MAY NOT ALSO BE NECESSARY, IF THE STATE MENTS WERE ON RECORD AND IT IS CLAIMED AND PRIMA FACIE ESTABLISHED THAT THEY WERE EXAMINED BY THE ASSESSIN G OFFICER BEFORE OR AT THE TIME OF RECORDING REASONS. ON THE OTHER HAND, IN THE PRESENT CASE, INFORMATION AS ENC LOSED AS ANNEXURE, HAS BEEN REFERRED. THIS IS THE ONLY MATER IAL RELIED UPON BY THE ASSESSING OFFICER. THE SAID ANNEXURE HA S BEEN QUOTED ABOVE. IN THIS CONNECTION, WE MAY NOTICE THA T M/S SWETU STONE PVT. LTD. IS AN INCORPORATED COMPANY AN D THE PETITIONER HAS PLEADED AND STATED THAT THE SAID COM PANY HAS A PAID-UP CAPITAL OF RS.90 LACS. THE COMPANY WA S INCORPORATED ON 4TH JANUARY, 1989 AND WAS ALSO ALLO TTED A PERMANENT ACCOUNT NUMBER IN SEPTEMBER, 2001. TO THI S EXTENT, THERE IS NO DISPUTE. IN THESE CIRCUMSTANCES , WE FEEL THE JUDGMENTS OF THE DELHI HIGH COURT IN COMMISSION ER OF INCOME W.P. (C) NO. 8067/2010 PAGE 15 TAX VERSUS SF IL STOCK BROKING LIMITED, [2010] 325 ITR 285 (DELHI) A ND SARTHAK SECURITIES COMPANY PRIVATE LIMITED VERSUS I NCOME TAX OFFICER, 2010 (329) ITR 110 (DELHI), IN WHICH C IT VERSUS LOVELY EXPORTS (P) LIMITED, (2009) 216 CTR 195 (SC) HAS BEEN APPLIED AND FOLLOWED, ARE APPLICABLE. WE MAY N OTICE HERE THAT THE RESPONDENT IN THEIR COUNTER AFFIDAVIT HAVE STATED THAT SWETU STONE PVT. LTD. IS UNIDENTIFIABLE AND, ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 19 THEREFORE, THE AFORESAID DECISIONS SHOULD NOT BE AP PLIED AND THE RATIO OF THE DECISION DATED 7TH JANUARY, 2011 I N WRIT PETITION (CIVIL) NO. 7517/2010, AGR INVESTMENT LIMI TED VERSUS ADDITIONAL COMMISSIONER OF INCOME TAX AND AN OTHER SHOULD BE APPLIED. IN THE SAID DECISION, DECISIONS IN THE CASE OF SARTHAK SECURITIES COMPANY PRIVATE LIMITED (SUPRA) AND SFIL STOCK BROKING LIMITED (SUPRA) WAS DISTINGU ISHED BY GIVING THE FOLLOWING REASONS: '22. ....IN SFIL STOCK BROKING LTD. (SUPRA), THE BE NCH HAS INTERFERED AS IT WAS NOT DISCERNIBLE WHETHER THE AS SESSING OFFICER HAD APPLIED HIS MIND TO THE INFORMATION AND INDEPENDENTLY ARRIVED AT A BELIEF ON THE BASIS OF M ATERIAL WHICH HE HAD BEFORE HIM THAT THE INCOME HAD ESCAPED ASSESSMENT. IN OUR CONSIDERED OPINION, THE DECISION RENDERED THEREIN IS NOT APPLICABLE TO THE FACTUAL M ATRIX IN THE CASE AT HAND. IN THE CASE OF SARTHAK SECURITIES CO. PVT. LTD. (SUPRA), THE DIVISION BENCH HAD NOTED THAT CER TAIN COMPANIES W.P. (C) NO. 8067/2010 PAGE 16 WERE USED AS CONDUITS BUT THE ASSESSEE HAD, AT THE STAGE OF ORIG INAL ASSESSMENT, FURNISHED THE NAMES OF THE COMPANIES WI TH WHICH IT HAD ENTERED INTO TRANSACTION AND THE ASSES SING OFFICER WAS MADE AWARE OF THE SITUATION AND FURTHER THE REASON RECORDED DOES NOT INDICATE APPLICATION OF MI ND. THAT APART, THE EXISTENCE OF THE COMPANIES WAS NOT DISPU TED AND THE COMPANIES HAD BANK ACCOUNTS AND PAYMENTS WERE MADE TO THE ASSESSEE COMPANY THROUGH THE BANKING CHANNEL. REGARD BEING HAD TO THE AFORESAID FACT SIT UATION, THIS COURT HAD INTERFERED. THUS, THE SAID DECISION IS ALSO DISTINGUISHABLE ON THE FACTUAL SCORE.' 18. THE FACTS INDICATED ABOVE DO NOT SHOW THAT M/S SWETU STONE PVT. LTD. IS A NON-EXISTING AND A FICTITIOUS ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 20 ENTITY/PERSON. DECISION IN AGR INVESTMENT LIMITED ( SUPRA), THEREFORE, DOES NOT HELP THE CASE OF THE RESPONDENT . 19. FOR THE REASONS STATED ABOVE, THE PRESENT WRIT PETITION IS ALLOWED AND WRIT OF CERTIORARI IS ISSUED QUASHING T HE PROCEEDINGS UNDER SECTION 148 OF THE ACT. IN THE FA CTS OF THE CASE, THERE WILL BE NO ORDER AS TO COSTS. 9.4. I FIND UNDER IDENTICAL CIRCUMSTANCES THE LD.CIT(A) HAS ACCEPTED THE SHARE APPLICATION MONEY OF RS.11,25,00 0/- IN THE A.Y. 2002-03 AND THE REVENUE IS NOT IN APPEAL AGAIN ST THE ORDER OF THE LD.CIT(A) IN DELETING THE ADDITION OF RS.11, 25,000/- MADE BY THE A.O. IN THE ORDER PASSED U/S 148 OF THE ACT. 9.5. THE VARIOUS DECISIONS RELIED BY THE LD.DR ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AND ARE DISTINGUISHABLE. IN ALL THOSE CASES EITHER FALSE E VIDENCES WERE ADDUCED BY THE ASSESSEE TO GIVE A COLOUR OF GENUINE NESS TO BOGUS ENTRIES THROUGH BANK ACCOUNTS OR DONORS DETA ILS WERE NOT GIVEN TO SUBSTANTIATE THAT THE SHAREHOLDER WAS NOT A PAPER COMPANY OR NOT A GENUINE INVESTOR. IN THIS VIEW OF THE MATTER I SET ASIDE THE ORDER OF LD.CIT(A) ON THE ISSUE OF VA LIDITY OF ISSUE OF NOTICE U/S 148 IN ABSENCE OF APPLICATION OF OWN MIND BY THE AO. SINCE THE ASSESSEE SUCCEEDS ON THIS LEGAL ISSU E THE ITA 5096/DEL/2014 ASSESSMENT YEAR: 2003-04 PRAGATI VANIJYA LTD. 21 GROUNDS ON MERIT ARE NOT BEING ADJUDICATED, BEING A CADEMIC IN NATURE. 10 . I N THE RESULT APPEAL FILED BY THE ASSESSEE IS ALLOW ED. PRONOUNCED IN THE OPEN COURT ON 31.07.2017. SD/- (RK PANDA) ACCOUNTANT MEMBER DT. 31 ST JULY, 2017. * MANGA/SUJEET COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT //TRUE COPY// ASSISTANT REGISTRAR ITAT, NEW DELHI