M/s. M.D.Packaging Ltd., New Delhi V. ITO, New Delhi

ITA 6198/DEL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6480 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 27-09-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 19-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained expenditure; Accommodation entries; Reason to believe; Reassessment proceedings
• Section: 69C; 143(3); 68; 148

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E : NEW DELHI BEFORE SH SUDHANSHU SRIVASTAVA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 6198/DEL/2013 (ASSESSMENT YEAR: 2003 - 04 ) MD PACKAGING LTD, C/O. SP JAIN & ASSOCIATES, U - 17(LGF), GREEN PARK (EXTENSION), NEW DELHI PAN:AABCM8236E VS. ITO, WARD - 6(1), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. ANIL JAIN, ADV REVENUE BY: SH. RAJESH KUMAR, SR. DR DATE OF HEARING 27/09/ 2016 DATE OF PRONOUNCEMENT 16 / 12 /2016 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT ( A - IX, NEW DELHI DATED 20.09.2013 FOR THE ASSESSMENT YEAR 2003 - 04. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER ASSESSING THE INCOME OF THE APPELLANT AT RS. 18,85,680 AS AGAINST RS. 87,690 DECLARED BY THE APPELLANT. 2. THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER BY TRE ATING THE NOTICE ISSUED UNDER SECTION 148 AS LEGAL AND PROPER AGAINST THE APPELLANT. 3. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER TREATING THE SHARE APPLICATION MONEY AMOUNTING TO RS 10,00,000 RECEIVED BY THE APPELLANT COMPANY FROM M/S MELODE ELECTRONICS P. LTD. AND M/S AKG AGENCIES P. LTD. AS AN ACCOMMODATION ENTRY AND THEREBY ADDING THE SAID AMOUNT U/S 68 . 4. THE LD CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF THE ASSESSING OFFICER FOR RS. 20000 AS ALLEGED COMMISSION PAID BY THE APPELLANT COMPANY TO ENTRY OPERATORS FOR PROCURING THE ALLEGED ENTRIES OF RS. 10,00,000 AS UNEXPLAINED EXPENDITURE U/S 69C BEING 2% OF THE ACCOMMODATION ENTRY AMOUNT. PAGE 2 OF 6 5. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE ASSE SSING OFFICER REJECTING THE BOOKS OF ACCOUNTS OF THE APPELLANT AND THEREBY MAKING AN ADDITION OF RS. 7,77,992 ON ACCOUNT OF DIFFERENCE OF G.P. 5. THE ORDER OF THE LD. CIT IS AGAINST LAW AND FACTS OF THE CASE. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASS ESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF AIR BUBBLE SHEETS USED FOR PACKAGING PURPOSES. IT FILED ITS RETURN OF INCOME ON 27.11.2003 SHOWING INCOME OF RS. 87690/ - . SUBSEQUENTLY, ON 19.03.2010 NOTICE U/S 148 WAS ISSUED, IN RESPONSE TO WHICH THE ASSESSEE SUBMITTED A LETTER REQUESTING TO TREAT THE ORIGINAL RETURN FILED AS RETURN FILED IN RESPONSE TO NOTICE U/S 148 OF THE ACT . SUBSEQUENTLY, THE ASSESSMENT WAS MADE BY THE LD AO MAKING ADDITION OF RS. 10 LAKHS U/S 68 AND RS. 777992/ - ON ACCOUNT OF LOWER GP. CONSEQUENTLY, INCOME WAS ASSESSED U/S 143 ( 3) RWS 148 OF THE ACT AT RS. 1797992/ - VIDE ORDER DATED 24.12.2010. SUBSEQUENTLY , AGGRIEVED BY THE ORDER OF THE LD AO THE ASSES SEE PREFERRED AN APPEAL BEFORE THE LD CIT(A) CHALLENGING THE ACTION OF THE LD AO IN REOPENING OF THE ASSESSMENT AS WELL AS ON THE MERITS. HOWEVER, THE LD CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE ON BOTH THE COUNTS AND THEREFORE THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE AR ADVANCING THE ARGUMENT ON REOPENING OF THE ASSESSMENT SUBMITTED THAT NOTICE U/S 148 OF THE ACT ISSUED ON 19.03.2010 IS BAD IN LAW AND FOR THIS HE REFERRED TO THE REASONS RECORDED BY THE LD AO WHICH ARE APPENDED AT PAGE 21 TO 22 OF THE P B. HE FURTHER SUBMITTED THAT THE LD AO MERELY ON THE BASIS OF INVESTIGATION REPORT OF THE DIT HAS FORMED A REASON TO BELIEVE THAT INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT WITHOUT APPLYING HIS MIND AND NOT EVEN COMING TO A PRIMA FACIE CONCLUSION THAT T HE TRANSACTION TO WHICH HE REFERRED TO WERE ACCOMMODATION ENTRY. HE FURTHER SUBMITTED ITS CASE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN CASE OF PR. CIT VS/ G&G PHARMA INDIA LTD 384 ITR 147 (DEL). 5. A GAINST THIS THE LD AR VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES AND RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN CASE OF PHOOL CHAND BAJRAN GLAL VS. ITO [ 203 ITR 456 ] . 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO PER USED THE ORDERS OF THE LOWER AUTHORITIES. THE REASONS RECORDED BY THE LD AO FOR PAGE 3 OF 6 REOPENING OF THE ASSESSMENT COMPLETED BEYOND 4 YEARS BUT WITHIN 6 YEARS AT PAGE 21 AND 22 OF THE PB ARE AS UNDER: - THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT HAD UNEARTHED A HUGE MONEY LAUNDERING MECHANISM WHEREIN IT WAS ESTABLISHED THAT BOGUS ACCOMMODATION ENTRIES WERE BEING PROVIDED/TAKEN. THESE ACCOMMODATION ENTRIES ARE RECEIVED IN LIEU OF PAYMENT OF CASH OF EQUIVALENT AMOUNT PLUS COMMISSION THEREON TO THE ENTRY OPERATOR. FOR OBVIOUS REASONS, THESE CASH TRANSACTIONS ARE NOT ROUTED THROUGH THE BOOKS OF ACCOUNT OF THE ASSESSEE. IN THIS CASE, INFORMATION HAS BEEN RECEIVED FROM DIRECTORATE OF INCOME TAX, (INVE STIGATION), NEW DELHI THAT DURING THE RELEVANT ASSESSMENT YEAR, THIS ASSESSEE HAD RECEIVED THE FOLLOWING CHEQUE AMOUNT(S) IN NATURE OF ACCOMMODATION ENTRY: VALUE OF ENTRY TAKEN INSTRUM ENT NO. BY WHICH ENTRY TAKEN DATE ON WHIC H ENTR Y TAKE N NAME OF ACCOUNT HOLDER OF ENTRY GIVING ACCOUNT BANK PROW WHICH ENTRY GIVEN BRANCH OF ENTRY GIVING BANK A/C NO. ENTRY GIVING ACCOUN T 500000 S13261 5 - JUL - 02 MELODE ELECTRONIC S(P) LTD JAILAXMI COOP BANK FATEHPURI 3332 THEREFORE, I HAVE REASON TO BELIEVE THAT AN INCOME OF RS.5,00,000/ - PLUS COMMISSION @ 2% THEREON AMOUNTING TO RS.10,000/ - , TOTALING TO RS.5,10,000/ - HAS ESCAPED ASSESSMENT DURING THE ASSESSMENT YEAR. ON THE BASIS OF THIS INFORMATION, I HAVE REASON TO BELIEVE THAT THE INCOMES DESCRIBED ABOVE HAVE ESCAPED ASSESSMENT AND THE CASE IS FIT FOR ISSUING NOTICE U/S 148 OF INCOME TAX ACT, 1961.' 7. ON PERUSAL OF THE ABOVE REASON IT IS APPARENT THAT THE LD AO HAS MERELY RELYING UPON THE REPORT OF THE DIT (INVESTIGATION) HAS REOPENE D THE CASE OF THE ASSESSEE WITHOUT COMING TO A PRIMA FACIE CONCLUSION THAT THE TRANSACTION TO WHICH HE RELIED WERE NOT GENUINE TRANSACTION AND HE APPEARED TO HAVE ONLY A VAGUE FEELING THAT THE INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. THE IDENTICAL IS SUE HAS BEEN CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN CASE OF PR. CIT VS. G & G PHARMA LTD 384 ITR 147 WHEREIN THE HONBLE COURT HAS HELD THAT 11. THE ABOVE BASIC REQUIREMENT OF SECTIONS 147/148 HAS BEEN REITERATED IN NUMEROUS DECISIONS OF THE SUPRE ME COURT AND THIS COURT. RECENTLY, THIS COURT RENDERED A DECISION DATED SEPTEMBER 22, 2015 IN I. T. A. NO. 356 OF PAGE 4 OF 6 2013 (CIT V. MULTIPLEX TRADING AND INDUSTRIAL CO. LTD. [2015] 378 ITR 351 (DELHI)) WHERE THE ASSESSMENT WAS SOUGHT TO BE REOPENED BEYOND THE PERIOD OF FOUR YEARS. THIS COURT CONSIDERED THE DECISION OF THE SUPREME COURT IN PHOOL CHAND BAJRANG LAL V. ITO (SUPRA) AS WELL AS THE DECISION OF THIS COURT IN HARYANA ACRYLIC MANUFACTURI NG CO. (P.) LTD. V. CIT [2009] 308 ITR 38 (DELHI) THE COURT NOTED THAT A MATERIAL CHANGE HAD BEEN BROUGHT ABOUT TO SECTION 147 OF THE ACT WITH EFFECT FROM APRIL 1, 1989 AND OBSERVED (PAGE 368 OF 378 ITR) : 'IT IS AT ONCE SEEN THAT THE AMENDMENT IN SECTION 147 OF THE ACT BROUGHT ABOUT A MATERIAL CHANGE IN LAW WITH EFFECT FROM APRIL 1, 1989. SECTION 147(A) AS IT STOOD PRIOR TO APRIL 1, 1989, REQUIRED THE ASSESS ING OFFICER TO HAVE A REASON TO BELIEVE THAT (A) THE IN COME OF THE ASSESSEE HAS ESCAPED ASSESSMENT AND (B) THAT SUCH ESCAPEMENT IS BY REASON OF OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO FILE A RETURN OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT YEAR. AFTER TH E AMENDMENT, ONLY ONE SINGULAR REQUIREMENT IS TO BE FULFILLED UNDER SECTION 147(A) AND THAT IS, THAT THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT INCOME OF AN ASSESSEE HAS ESCAPED ASSESSMENT. HOWEVER, THE PROVISO TO SECTION 147 OF THE ACT PROVIDES A CO MPLETE BAR FOR REOPENING AN ASSESSMENT, WHICH HAS BEEN MADE UNDER SECTION 143(3) OF THE ACT, AFTER THE EXPIRY OF FOUR YEARS. HOWEVER, THIS PROSCRIPTION IS NOT APPLICABLE WHERE THE INCOME OF AN ASSESSEE HAS ESCAPED ASSESSMENT ON ACCOUNT OF FAILURE ON THE PA RT OF THE ASSESSEE TO MAKE A RETURN OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT. THUS, IN ORDER TO REOPEN AN ASSESS MENT WHICH IS BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THE CONDITION THAT THERE HAS BEEN A FAILURE ON THE PART OF THE ASSESSEE TO TRULY AND FULLY DISCLOSE ALL MATERIAL FACTS MUST BE CONCLUDED WITH CERTAIN LEVEL OF CERTAINTY. IT IS IN THE AFORESAID CONTEXT THAT THIS COURT IN HARYANA ACRYLIC MANUFACTURING CO. (P.) LTD. (SUPR A) EXPLAINED THAT THE RATIO OF THE DECISION IN PHOOL CHAND BAJRANG LAL (SUPRA) MAY NOT BE ENTIRELY APPLICABLE SINCE THE SAME WAS IN RESPECT OF SECTION 147(A) AS IT EXISTED PRIOR TO THE AMENDMENT.' 12. IN THE PRESENT CASE, AFTER SETTING OUT FOUR ENTRIES, ST ATED TO HAVE BEEN RECEIVED BY THE ASSESSEE ON A SINGLE DATE, PAGE 5 OF 6 I.E., FEBRUARY 10, 2003, FROM FOUR ENTITIES WHICH WERE TERMED AS ACCOMMODATION ENTRIES, WHICH INFORMATION WAS GIVEN TO HIM BY THE DIRECTORATE OF INVESTIGATION, THE ASSESSING OFFICER STATED : 'I H AVE ALSO PERUSED VARIOUS MATERIALS AND REPORT FROM INVESTIGATION WING AND ON THAT BASIS IT IS EVIDENT THAT THE ASSESSEE COMPANY HAS INTRODUCED ITS OWN UNACCOUNTED MONEY IN ITS BANK ACCOUNT BY WAY OF ABOVE ACCOMMODATION ENTRIES'. THE ABOVE CONCLUSION IS UNH ELPFUL IN UNDERSTANDING WHETHER THE ASSESSING OFFICER APPLIED HIS MIND TO THE MATERIALS THAT 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 WOULD NOT HAVE BEEN DIFFICULT FOR THE ASSESSING OFFICER, IF HE HAD IN FACT UNDERTAKEN 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 ALONG WITH TH E RETURN, WHICH WAS FILED ON NOVEMBER 14, 2004, AND WAS PROCESSED UNDER SECTION 143(3) OF THE ACT. WITHOUT FORMING A PRIMA FACIE OPINION, ON THE BASIS OF SUCH MATERIAL, IT WAS NOT POSSIBLE FOR THE ASSESSING OFFICER 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 THE COURT, IN LIGHT OF THE LAW EXPLAINED WITH SUFFICIENT CLARITY BY THE SUPREME COURT IN THE DECISIONS DISCUSSED HER EINBEFORE, THE BASIC REQUIREMENT THAT THE ASSESSING OFFICER MUST 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. 13. MR. SAWHNEY TOOK THE COURT THROUGH T HE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) TO SHOW HOW THE COMMISSIONER OF INCOME - TAX (APPEALS) DISCUSSED THE MATERIALS PRODUCED DURING THE HEARING OF THE APPEAL. THE COURT WOULD LIKE TO OBSERVE THAT THIS IS IN THE NATURE OF A POST MORTEM EXERCIS E AFTER THE EVENT OF REOPENING OF THE ASSESSMENT HAS TAKEN PLACE. WHILE THE COMMISSIONER OF INCOME - TAX MAY HAVE PROCEEDED ON THE BASIS THAT THE REOPENING OF THE ASSESSMENT WAS VALID, THIS DOES NOT SATISFY THE REQUIREMENT OF LAW THAT PRIOR TO THE REOPENING OF THE ASSESSMENT, THE ASSESSING OFFICER HAS TO, APPLYING HIS MIND TO THE MATERIALS, CONCLUDE THAT HE HAS REASON TO BELIEVE THAT INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. UNLESS THAT BASIC JURISDICTIONAL REQUIREMENT IS SATISFIED A POST MORTEM EXERCISE OF ANALYSING MATERIALS PRODUCED SUBSEQUENT TO THE REOPENING WILL NOT RESCUE AN INHERENTLY DEFECTIVE REOPENING ORDER FROM INVALIDITY. PAGE 6 OF 6 IN NUTSHELL HON HIGH COURT IN THE DECISION , WHERE IN THE JUDGMENT CITED BY LD DR HAS ALREADY BEEN CONSIDERED, HAS HELD THAT THAT PRIOR TO THE REOPENING OF THE ASSESSMENT THE AO HAS TO APPLY HIS MIND TO THE MATERIAL AND CONCLUDE THAT HE HAS REASON TO BELIEVE THAT INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. UNLESS THIS BASIC JURISDICTIONAL REQUIREMENT IS SATISFIE D THE POST MORTEM EXERCISE OF ANALYZING MATERIAL PRODUCED SPECIFICALLY TO THE REOPENING WILL NOT COME TO RESCUE OF REVENUE. IN VIEW OF THE ABOVE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT ON SIMILAR FACT S WE ARE OF THE OPINION THAT THE ORDER OF TH E AO CANNOT BE UPHELD BY TREATING THE NOTICE ISSUED U/S 148 A S LEGAL AND PROPER. THEREFORE, WE QUASH THE REASSESSMENT PROCEEDINGS HOLDING IT TO BE WITHOUT JURISDICTION. IN VIEW OF THIS THE GROUND NO. 2 OF THE APPEAL OF THE ASSESSEE WHICH IS JURISDICTIONAL GROUND IS ALLOWED CANCELLING THE REOPENING OF THE ASSESSMENT. 8. IN VIEW OF OUR FINDING IN GROUND NO. 2 WE DO NOT THINK IT NECESSARY TO ADJUDICATE THE OTHER GROUNDS. HENCE, THEY ARE DISMISSED AS SUCH. 9. IN VIEW OF THIS THE APPEAL OF THE ASSESSEE IS PARTLY AL LOWED. ORDER PRO NOUNCED IN THE OPEN COURT ON 1 6 / 12 /2016. - S D / - - S D / - (SUDHANSHU SRIVASTAVA) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 6 / 12 /2016 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI