M/s. MKM Finsec (P) Ltd., New Delhi V. ITO, New Delhi

ITA 6366/DEL/2013

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0582 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 13-06-2017
• Assessment Year: 2001-2002
• Appeal Filed On: 02-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR CHADHA
• Keywords: Question of law; Accommodation entries; Assessment record; Reason to believe; Set aside
• Section: 143(3); 148; 139

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI D BEN CH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI KULDIP SINGH, JUDICIAL MEM BER ITA NO. 6366/DEL/2013 [A.Y 2001-02] M/S MKM FINSEC [PVT] LTD VS. THE I.T.O 301, DHAKA CHAMBER WARD - 6 (1) 2068/39, NAIWALA, NEW DELHI KAROL BAGH, NEW DELHI PAN: AAACM 6961 H (APPLICANT) ( RESPONDENT) ASSESSEE BY : SHRI SOMIL AGA RWAL, ADV SHRI MADHAV KAPUR DEPARTMENT BY : SHRI VIJAY KUMAR CHADHA, SR. DR DATE OF HEARING : 17.09.2019 DATE OF PRONOUNCEMENT : 17.09.2019 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX [APPEALS] - 9, NEW DELHI DATED 27.09.2013 PERTAINING TO ASSESSMENT YEAR 2001-02. 2 2. VIDE GROUND NO. 1, THE ASSESSEE HAS CHALLENGED T HE VALIDITY OF THE ASSESSMENT ORDER FRAMED U/S 143(3) R.W.S 147 OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHOR T] CLAIMING THAT THE REOPENING OF THE ASSESSMENT AND FRAMING THE IMPUGNE D ASSESSMENT ORDER IS BAD IN LAW AND BEYOND JURISDICTION. 3. SINCE THIS ISSUE GOES TO THE ROOT OF THE MATTER, WE PROCEED TO DECIDE THIS AT THE OUTSET. 4. FACTS EMANATING FROM THE ASSESSMENT RECORDS REVE AL THAT DURING THE YEAR UNDER CONSIDERATION RETURN, OF INCOME WAS FILED ON 31.10.2001, DECLARING INCOME AT RS. 71,540/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY, STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, BOOKS OF ACCOUNT WERE PRODU CED AND TEST CHECKED. SUBSEQUENTLY, ASSESSMENT ORDER WAS FRAMED VIDE ORDER 27.02.2004 U/S 143(3) AND RETURNED INCOME WAS ASSES SED AT RS. 2,91,540/-. 5. ON 27.07.2008, THE ASSESSING OFFICER ISSUED NOTI CE U/S 148 OF THE ACT THEREBY REOPENING THE COMPLETED ASSESSMENT. TH E REASONS FOR REOPENING THE ASSESSMENT READ AS UNDER: 3 IN THIS CASE, INFORMATION HAS BEEN RECEIVED FROM D IRECTOR OF INCOME LAX. (INVESTIGATION), NEW DELHI THAT (.LURIN G THE RELEVANT ASSESSMENT YEAR, THIS ASSESSEE HAD RECEIVED CHEQUE AMOUNT(S) OF RS. 10,20.000/- IN THE NATURE OF ACCOMMODATION ENTR Y. THESE ACCOMMODATION ENTRIES ARE RECEIVED IN LIEN OL PAYME NT OF CASH OF EQUIVALENT AMOUNT PLUS COMMISSION THEREON TO THE EN TRY OPERATOR. FOR OBVIOUS REASONS, THESE CASH TRANSACTIONS ARE NO T ROUTED THROUGH THE BOOKS OF ACCOUNT OF THE ASSESSEE. THERE FORE, 1 HAVE REASON TO BELIEVE THAT AN INCOME OF RS. 10,20,000/- AND COMMISSION @ 2% AMOUNTING TO RS.20,400/- HAS ESCAPED ASSESSMEN T IN THE ASSESSMENT YEAR-2001-02. IN ADDITION TO THIS, AS PE R THE INFORMATION SUPRA, THE ASSESSEE WAS ALSO ENGAGED IN THE ACTIVITY OF PROVIDING ACCOMMODATION ENTRIES. DURING THE RELEVAN T ASSESSMENT YEAR, IT HAD REPORTEDLY PROVIDED SUCH ACCOMMODATION ENTRIES TO THE TUNC OF RS.3,47,71,006/-. ON THIS AMOUNT, THE COMMI SSION @2% COMES OUT TO BE AT RS.6,95,420/-. 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 THE 1.1. ACT 1961 THE CASE FOR ASSESSMENT YEAR 2001-02 WAS ASSESSED U /S 143(3). IT IS THEREFORE REQUESTED THAT THE NECESSARY APPROV AL MAY KINDLY BE OBTAINED FROM CIT, DELHI-11, NEW DELHI, AS PER T HE PROVISIONS OF SECTION 151 OF THE INCOME TAX ACT, 1961. 4 6. AS MENTIONED ELSEWHERE, THE ORIGINAL ASSESSMENT ORDER WAS FRAMED VIDE ORDER DATED 27.02.2004 AND COMPLETED AS SESSMENT HAS BEEN REOPENED VIDE NOTICE DATED 27.07.2008. IT CAN BE SAFELY CONCLUDED THAT THE NOTICE U/S 148 OF THE ACT WAS IS SUED BEYOND FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEARS , FIRST PROVISO TO SECTION 147 OF THE ACT SQUARELY APPLY AND THE SAME IS AS UNDER:- PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTI ON (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR TH E RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM TH E END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON THE PAR T OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN R ESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATE RIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT Y EAR. 7. THE MANDATE OF THIS PROVISO IS THAT INCOME THAT HAS TO BE TAXED MUST HAVE ESCAPED ASSESSMENT BY REASONS OF THE FAIL URE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERI AL FACTS NECESSARY FOR HIS ASSESSMENT. 5 8. THERE IS NOT EVEN A WHISPER IN THE REASONS RECOR DED FOR THE REOPENING OF THE ASSESSEE RELATING TO NON DISCLOSUR E OF FULL AND TRUE FACTS BY THE ASSESSEE. THE HONBLE HIGH COURT OF DE LHI IN THE CASE OF HARYANA ACRYLIC MANUFACTURING COMPANY 308 ITR 38 HA D THE OCCASION TO CONSIDER A SIMILAR ISSUE AND OBSERVED AS UNDER:- 20. IN THE REASONS SUPPLIED TO THE PETITIONER, THER E IS NO WHISPER, WHAT TO SPEAK OF ANY ALLEGATION, THAT THE PETITIONER HAD FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT AND THAT BECAUSE OF THIS F AILURE THERE HAS BEEN AN ESCAPEMENT OF INCOME CHARGEABLE T O TAX. MERELY HAVING A REASON TO BELIEVE THAT INCOME HAD E SCAPED ASSESSMENT, IS NOT SUFFICIENT TO REOPEN ASSESSMENTS BEYOND THE FOUR YEAR PERIOD INDICATED ABOVE. THE ESCAPEMEN T OF INCOME FROM ASSESSMENT MUST ALSO BE OCCASIONED BY T HE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MAT ERIAL FACTS, FULLY AND TRULY. THIS IS A NECESSARY CONDITION FOR OVERCOMING THE BAR SET UP BY THE PROVISO TO SECTION 147. IF TH IS CONDITION IS NOT SATISFIED, THE BAR WOULD OPERATE AND NO ACTI ON UNDER SECTION 147 COULD BE TAKEN. WE HAVE ALREADY MENTION ED ABOVE THAT THE REASONS SUPPLIED TO THE PETITIONER DOES NO T CONTAIN ANY SUCH ALLEGATION. CONSEQUENTLY, ONE OF THE CONDI TIONS PRECEDENT FOR REMOVING THE BAR AGAINST TAKING ACTIO N AFTER THE SAID FOUR YEAR PERIOD REMAINS UNFULFILLED. IN O UR RECENT DECISION IN WEL INTERTRADE (P.) LTD.S WE HAD AGREE D WITH THE 6 VIEW TAKEN BY THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF DULI CHAND SINGHANIA THAT, IN THE ABSENCE OF AN ALLEGATION IN THE REASONS RECORDED THAT THE ESCAPEMENT OF INCOME HAD OCCURRED BY REASON OF FAILURE ON THE PART OF THE AS SESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR HIS ASSESSMENT, ANY ACTION TAKEN BY THE ASSESSING OFFIC ER UNDER SECTION 147 BEYOND THE FOUR YEAR PERIOD WOULD BE WH OLLY WITHOUT JURISDICTION. REITERATING OUR VIEWPOINT, WE HOLD THAT THE NOTICE DATED 29-3-2004 UNDER SECTION 148 BASED ON THE RECORDED REASONS AS SUPPLIED TO THE PETITIONER AS W ELL AS THE CONSEQUENT ORDER DATED 2-3-2005 ARE WITHOUT JURISDI CTION AS NO ACTION UNDER SECTION 147 COULD BE TAKEN BEYOND T HE FOUR YEAR PERIOD IN THE CIRCUMSTANCES NARRATED ABOVE. 9. A SIMILAR VIEW WAS TAKEN BY THE HONBLE HIGH COU RT OF PUNJAB AND HARAYANA IN THE CASE OF DULICHAND SINGHANIA 269 ITR 192, THE RELEVANT PART READS AS UNDER:- 13. THE ENTIRE THRUST OF THE FINDINGS RECORDED BY THE AO IN HIS ORDER DT. 13TH MARCH, 2003 IS TO JUSTIFY HIS SATISFACTION ABOUT ESCAPEMENT OF INCOME. ACCORDING T O HIM, IT WAS A CLEAR CASE OF ESCAPEMENT OF INCOME AS DEFINED IN EXPLN. 2 TO SECTION 147 AS THE ASSESSEE HAD BEEN ALLOWED ITA NO. 98/RPR/2012 & C.O. NO. 01/RPR/16 AND OTHERS . A.Y. 2004-05 5 EXCESSIVE RELIEF UNDER SECTI ON 80O OF THE ACT. HOWEVER, IT IS NOT NECESSARY FOR US TO GO INTO 7 THE MERITS OF THIS FINDING AS THE SECOND REQUIREMEN T OF THE PROVISO HAS NOT BEEN SATISFIED OBVIOUSLY. THE REASO NS RECORDED BY THE AO FOR INITIATION OF PROCEEDINGS UN DER SECTION 147 OF THE ACT HAVE ALREADY BEEN REPRODUCED ABOVE. A BARE PERUSAL OF THE SAME SHOWS THAT THE SATISFACTION RECORDED THEREIN IS MERELY ABOUT ESCAP EMENT OF INCOME. THERE IS NOT EVEN A WHISPER OF AN ALLEGA TION THAT SUCH ESCAPEMENT HAD OCCURRED BY REASON OF FAIL URE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRUL Y ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT. ABSENC E OF THIS FINDING, WHICH IS A 'SINE QUO NON' FOR ASSUMIN G JURISDICTION UNDER SECTION 147 OF THE ACT IN A CASE FALLING UNDER THE PROVISO THERETO, MAKES THE ACTION TAKEN B Y THE AO WHOLLY WITHOUT JURISDICTION. AS ALREADY OBSERVED, THE LEARNED COUNSEL FOR THE REVENUE HAS CONCEDED THAT N EITHER IN THE REASONS RECORDED NOR IN THE ORDER DT. 13TH M ARCH, 2003, HAS THE ASSESSEE BEEN CHARGED WITH FAILURE TO DISCLOSE, FULLY AND TRULY ALL MATERIAL FACTS NECESS ARY FOR HIS ASSESSMENT. IN FENNEI (INDIA) LTD. V. DY. CTT (2000 ) 241 ITR 672 (MAD), SIMILAR MATTER HAD COME UP FOR CONSIDERA TION BEFORE THE MADRAS HIGH COURT AND IT HAS BEEN HELD A S UNDER: THE PRECONDITION FOR THE EXERCISE OF THE POWER UNDER SECTION 147 IN CASES WHERE POWER IS EXERCISED WITHIN A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR IS THE BELIEF REASONABLY 'ENTERTAINED BY THE AO THAT ANY INCOME CHARGEABLE 8 TO TAX HAS ESCAPED ASSESSMENT FOR THAT ASSESSMENT YEAR. HOWEVER, WHEN THE POWER IS INVOKED AFTER THE EXPIRY OF THE PERIOD OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR, A FURTHER PRECONDITION FOR SUC H EXERCISE IS IMPOSED BY THE PROVISO NAMELY, THAT THERE HAS BEEN A FAILURE ON THE PART OF THE ASSESSE E TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE T O A NOTICE ISSUED UNDER SECTION 142 OR SECTION 148 OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. UNLESS, THE CONDITION IN THE PROVISO IS SATISFIED, THE AO DOES N OT ACQUIRE JURISDICTION TO INITIATE ANY PROCEEDING UND ER SECTION 147 OF THE ACT AFTER THE EXPIRY OF FOUR YEA RS FROM THE END OF THE ASSESSMENT YEAR. THUS, IN CASES WHERE THE INITIATION OF THE PROCEEDINGS IS BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR, THE AO MUST NECESSARILY RECORD NOT ONLY HIS REASONABLE BELIEF THAT INCOME HAS ESCAPED ASSESSMENT BUT ALSO THE DEFAULT OR FAILURE COMMITTED BY THE ASSESSEE. FAILURE TO DO SO WOULD VITIATE THE NOTICE AND THE ENTIRE PROCEEDINGS. THE RELEVANT WORDS IN THE PROVISO ARE, '.......UNLESS A NY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE O N THE PART OF THE ASSESSEE.....' 9 MERE ESCAPE OF INCOME IS INSUFFICIENT TO JUSTIFY TH E INITIATION OF ACTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR. SUCH ESCAPEMENT MUST BE BY REASON OF THE FAILURE ON ITA NO. 98/RPR/2012 & C.O. NO. 01/RPR/16 AND OTHERS . A.Y. 2004-05 6 THE PART OF TH E ASSESSEE EITHER TO FILE A RETURN REFERRED TO IN THE PROVISO OR TO TRULY AND FULLY DISCLOSE THE MATERIAL FACTS N ECESSARY FOR THE ASSESSMENT. WHENEVER A NOTICE IS ISSUED BY THE AO BEYOND A PERI OD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, SUCH NOTICE BEING ISSUED WITHOUT RECORDING THE REAS ONS FOR HIS BELIEF THAT INCOME ESCAPED ASSESSMENT, IT CANNO T BE PRESUMED IN LAW THAT THERE IS ALSO A FAILURE ON THE PART OF THE ASSESSEE TO FILE THE RETURNS REFERRED TO IN THE PROVISO OR A FAILURE TO FULLY AND TRULY DISCLOSE THE MATERI AL FACTS. THE REASONS REFERRED TO IN THE MAIN PARAGRAPH OF SE CTION 147 WOULD, IN CASES WHERE THE PROVISO IS ATTRACTED, INCLUDE REASONS REFERRED TO IN THE PROVISO AND IT IS NECESS ARY FOR THE AO TO RECORD THAT ANYONE OR ALL THE CIRCUMSTANCE S REFERRED TO IN THE PROVISO EXISTED BEFORE THE ISSUE OF NOTICE UNDER SECTION 147.' SIMILARLY, IN AIVIND MILL S LTD. V. DY. CTT (2000) 242 ITR 173 (GUJ) IT WAS HELD AS UND ER: 'IT IS A CLEAR CASE WHERE THE AO HAS NO REASON TO LINK ESCAPEMENT OF INCOME FROM ASSESSMENT WITH NON-DISCL OSURE OF ANY MATERIAL FACT NECESSARY FOR HIS ASSESSMENT A T THE TIME OF ORIGINAL ASSESSMENT BUT IS DUE TO AN ERRONE OUS DECISION ON THE QUESTION OF LAW BY THE AO. THUS, TH E CASE 10 IS SQUARELY COVERED BY THE PROVISO TO SECTION 147 A ND NOT SECTION 149. INITIATION OF PROCEEDINGS UNDER THE PR OVISO BEING CLEARLY BARRED BY TIME, THE AO COULD NOT HAVE ASSUMED JURISDICTION BY ISSUING NOTICE UNDER SECTIO N 148 IN RESPECT OF THE ASST. YR. 1982-83.' 10. AS WE HAVE ALREADY POINTED OUT, DURING THE COUR SE OF SCRUTINY ASSESSMENT PROCEEDINGS THE BOOKS OF ACCOUNT WERE EX AMINED AND TEST CHECKED. IN LIGHT OF THESE FACTS, COMING BACK TO TH E REASONS RECORDED FOR REOPENING OF THE ASSESSMENT AS MENTIONED ELSEWH ERE, IT CAN BE SEEN THAT THE ASSESSING OFFICER HAS BORROWED THE IN FORMATION RECEIVED FROM THE DIRECTOR [INV] AND ON THE BASIS OF THIS IN FORMATION, HE HAD REASON TO BELIEF THAT INCOME HAS ESCAPED ASSESSMENT AND IT IS A FIT CASE FOR REOPENING. 11. CONSIDERING THE FACTS OF THE CASE IN TOTALITY, IN LIGHT OF THE JUDICIAL DECISIONS DISCUSSED HEREINABOVE AND KEEPIN G IN MIND THE FIRST PROVISO TO SECTION 147 OF THE ACT, WE ARE OF THE CO NSIDERED VIEW THAT THE NOTICE ISSUED U/S 148 OF THE ACT IS WITHOUT JUR ISDICTION AND DESERVES TO BE SET ASIDE. 11 12. THE LD. DR HAS RELIED UPON THE DECISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF NOVA PROMOTERS 18 TAXMANN 2 17. BUT WE FIND THAT THIS DECISION OF THE HON'BLE HIGH COURT IS MIS PLACED ON THE FACTS OF THE CASE IN HAND. 13. NOTICE U/S 148 OF THE ACT IS SET ASIDE AND ACCO RDINGLY THE ASSESSMENT ORDER SO FARMED IS QUASHED. 14. SINCE WE HAVE QUASHED THE ASSESSMENT ORDER, WE DO NOT FIND IT NECESSARY TO DWELL INTO THE MERITS OF THE CASE. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO. 6366/DEL/2013 IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 17.09. 2019. SD/- SD/- [ KULDIP SINGH] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17 TH SEPTEMBER, 2019 VL/ 12 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER