M/s. R.K. Garg Developers Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 6558/DEL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7306 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 3
• Next Hearing Date: 23-08-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 03-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: F R MEENA
• Assessee Lawyers: B L GUPTA ITP
• Keywords: Income from undisclosed sources; Question of law; Tangible material; Accommodation entries; Reason to believe; Reassessment proceedings
• Section: 143(3); 142(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH SMC-3 : NEW DELHI) BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 6558/DEL/2014 ASSESSMENT YEAR: 2006-07 M/S R.K. GARG DEVELOPERS PVT. LTD. VS. ITO, WARD 15(1) E-920, SARASWATI VIHAR, NEW DELHI DELHI 110 088 (PAN: AADCR1835L) (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. BL GUPTA, ITP REVENUE BY : SH. FR MEENA, SR. DR DATE OF HEARING : 23-08-2016 DATE OF ORDER : 31-08-2016 ORDER PER H.S. SIDHU, J.M. THE ASSESSEE HAS FILED THE APPEAL AGAINST THE ORDE R DATED 1.9.2014 OF THE LD. CIT(A)-XVIII, NEW DELHI PERTAIN ING TO ASSESSMENT YEAR 2006-07 AND RAISED THE FOLLOWING GR OUNDS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS INCORRECT AND UNJUSTIFIED IN:- A) HOLDING THAT ACTION U/S. 147/148 HAS BEEN RIGHTLY TAKEN BY THE AO. ITA NO.6558/DEL/2014 2 B) HOLDING THAT ADDITION OF RS. 41,40,000/- HAS BEEN RIGHTLY MADE BY THE AO U/S. 68. C) HOLDING THAT THE AMOUNT OF RS. 41,40,000/- IS THE ASSESSEES OWN MONEY / FUND AND LIABLE TO BE INCLUDED IN THE TOTAL INCOME AND TAXED. D) HOLDING THAT THE ASSESSEE HAS FAILED TO PROVE THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTIONS WITH THE FOLLOWING PERSONS CREDIT IN T HE A/C BOOKS. 1. RASHMI GARG 40,000/- 2. KARAN KUMAR GARG 50,000/- 3. TEJESVIE INVESTMENT PVT. LTD. 7,00,000/- 4. PURI FINANCIAL SERVICES PVT. LTD. 10,00,000 5. VDM MARKETING PVT. LTD. 5,00,000/- 6. DHANUK SECURITIES PVT. LTD. 5,00,000/- 7. DHANUK COMMERCIAL PVT. LTD. 6,50,000/- 8. INDIA DOT. COM PVT. LTD. 5,00,000/- 9. RENU KANSAL 1,00,000/- 10. RAMA KANSAL 1,00,000/- 41,40,000/- (E) HOLDING THAT THE ADDITION @0.5% ON ACCOUNT OF COMMISSION PAID ON THE ABOVE SAID AMOUNTS HAS BEEN RIGHTLY MADE BY THE AO EVEN IN THE ABSENCE OF ANY EVIDENCE. ITA NO.6558/DEL/2014 3 (F) IN DISMISSING THE GROUND NUMBER 1 AND 2 RAISED IN THE GROUND OF APPEAL BEFORE THE CIT(A). 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY FILED ITS RETURN OF INCOME ON 27.10.2006 DECLARING INCOME OF RS. 2612/-. THE RETURN OF INCOME WAS PROCESSED U/S. 143(1) OF T HE I.T. ACT, 1961. THE CASE WAS REOPENED U/S. 147/148 OF THE I.T . ACT AND NOTICE U/S. 148 WAS ISSUED TO THE ASSESSEE ON 13.3.2013, W ITH THE PRIOR APPROVAL OF THE ADDL. CIT, RANGE-15, NEW DELHI, AFT ER RECORDING THE REASONS. IN RESPONSE TO THE NOTICE ISSUED U/S. 148 OF THE I.T. ACT ASSESSEE VIDE ITS LETTER DATED 17.6.2013 STATED THA T RETURN OF INCOME FOR AY 2006-07 AS ON 27.10.2006 HAS ALREADY FILED W ITH THE WARD 15(1) MAY BE TREATED AS THE RETURN FILED. STATUTORY NOTICES WERE SENT U/S. 143(2) AND 142(1) WAS ISSUED ON 19.9.2013 ALON GWITH QUESTIONNAIRE TO THE ASSESSEE AND IN RESPONSE THERE TO ASSESSEES REPRESENTATIVE ATTENDED THE PROCEEDINGS FROM TIME TO TIME. THEREAFTER, THE AO ASSESSED THE INCOME OF THE ASSE SSEE AT RS. 49,67,310/- VIDE HIS ORDER DATED 14.2.2014 PASSED U/S. 147/143(3) OF THE I.T. ACT, 1961 AND MADE THE ADDITION OF RS. 49,64,700/-. 3. AGAINST THE ORDER OF THE LD. AO, ASSESSEE APPEAL ED BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATED 1.9.2014 HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEEE AND AFFIRMED TH E ACTION OF THE AO ON THE LEGAL ISSUE I.E. REOPENING OF THE CASE U/ S. 147/148 OF THE I.T. ACT, 1961. ITA NO.6558/DEL/2014 4 4. AGGRIEVED WITH THE AFORESAID ORDER OF THE LD. C IT(A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. LD. COUNSEL OF THE ASSESSEE HAS FILED TWO PAPER BOOKS ONE CONTAINING PAGES 1 TO 199 ATTACHING THEREWITH THE A SSESSMENT AND APPELLATE PROCEEDINGS DOCUMENTS AND THE SECOND PAPE R BOOK IS CONTAINING PAGES 1 TO 58 HAVING THE COPIES OF THE V ARIOUS DECISION OF THE ITAT AND THE HONBLE HIGH COURTS AND THE WRITTE N SUBMISSION ETC. HE STATED THAT LD. CIT(A) HAS ERRED IN CONFI RMING THE ACTION OF THE AO IN ASSUMING JURISDICTION U/S. 147 AND THAT T OO WITHOUT COMPLYING WITH THE MANDATORY CONDITIONS AS PRESCRIB ED UNDER SECTION 147 TO 151 OF THE I.T. ACT, 1961 AND THE REASONS RE CORDED ARE INVALID AND CONTRARY TO LAW AND FACTS AND THERE IS NO SATIS FACTION AS PER LAW U/S. 151 OF THE ACT. HE FURTHER DRAW OUR ATTENTI ON TOWARDS THE COPY OF REASONS FOR REOPENING THE CASE U/S. 148 AND STAT ED THAT NO PROPER REASONS WERE RECORDED; NO NEXUS BETWEEN THE MATERIA LS RELIED UPON AND THE BELIEF FORMED FOR ESCAPEMENT OF INCOME; NO APPLICATION OF MIND; NO PROPER SATISFACTION WAS RECORDED BEFORE IS SUE OF NOTICE U/S. 148; NO INDEPENDENT CONCLUSION THAT THERE WAS ESCAP EMENT OF INCOME. IT WAS FURTHER STATED THAT THE CASE WAS R EOPENED ONLY ON THE BASIS OF INVESTIGATION WING INFORMATION WHICH S UFFERS WITH SERIOUS DEBILITY AND LACKS DEFINITENESS, WITHOUT DESCRIBING THE BASIC ASPECTS OF ALLEGED TRANSACTION AND IN THE ABSENCE OF THE S AME, WHOLE ACTION OF THE AO GETS VITIATED. TO SUPPORT HIS CONTENTIO N HE SUBMITTED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FA VOUR OF THE ASSESSEE ITA NO.6558/DEL/2014 5 BY THE ITAT DECISION DATED 09.1.2015 IN THE CASE OF G&G PHARMA INDIA LIMITED VS. ITO PASSED IN ITA NO. 3149/DEL/20 13 (AY 2003-04) IN WHICH THE JUDICIAL MEMBER IS THE AUTHOR. HE F URTHER STATED THAT THE ABOVE DECISION OF THE ITAT DATED 9.1.2015 HAS BEEN UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN ITS DECISI ON DATED 08.10.2015 IN ITA NO. 545/2015 IN THE CASE OF PR. CIT-4 VS. G& G PHARMA INDIA LTD. IN THIS REGARD, HE FILED THE COPIES OF THE AFO RESAID DECISIONS BEFORE THE TRIBUNAL. IN VIEW OF THE ABOVE, HE REQUESTED THAT BY FOLLOWING THE AFORESAID PRECEDENTS THE REASSESSMEN T PROCEEDINGS OF THE AO MAY BE QUASHED BY ACCEPTING THE APPEAL FILED BY THE ASSESSEE. 6. ON THE CONTRARY, LD. DR RELIED UPON THE ORDER PA SSED BY THE AUTHORITIES BELOW AND STATED THAT THE AO HAS PROPER LY RECORDED THE FOR REOPENING BY DUE APPLICATION OF MIND, HENCE, TH E APPEAL OF THE ASSESSEE MAY BE DISMISSED. 7. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEVANT RECORDS AVAILABLE WITH US, ESPECIALLY THE ORDERS OF THE REVENUE AUTHORITIES AND THE CASE LAW CITED BY THE ASSESSEE S COUNSEL ON THE ISSUE IN DISPUTE. IN MY VIEW, IT IS VERY M UCH NECESSARY TO REPRODUCE THE REASONS RECORDED BY THE AO BEFORE IS SUE OF NOTICE TO THE ASSESSEE U/S. 148 OF THE I.T. ACT, 1961 WHIC H IS REPRODUCED HEREUNDER:- ITA NO.6558/DEL/2014 6 'DIT(INV.) UNIT-IV, DURING THE COURSE OF INVESTIGAT ION IN THE CASE OF SH. TARUN GOYAL HAS FOUND THAT SH. TARU N GOYAL CREATED A NUMBER OF PRIVATE LIMITED COMPANIES AND FIRMS FOR PROVIDING ACCOMMODATION ENTRIES. THE DIRE CTORS OF THESE COMPANIES WERE HIS EMPLOYEES WHO WORKED IN HIS OFFICE AS PEONS, RECEPTIONISTS ETC. THE DOCUMEN TTS WERE GOT SIGNED FROM THESE EMPLOYEES. A NUMBER OF BANK ACCOUNTS IN VARIOUS BANKS WERE OPENED IN THE NAMES OF THESE COMPANIES AND HIS EMPLOYEES, IN WHIC H HUGE CASH DEPOSITS WERE MADE. LATER CHEQUES WERE ISSUED TO VARIOUS BENEFICIARIES, DISGUISING THE WHO LE TRANSACTION AS GENUINE. DURING THE COURSE OF INVEST IGATION IT WAS ESTABLISHED THAT SH. TARUN GOYAL HAS FLOATED ABOUT 90 COMPANIES FOR THE PURPOSE OF PROVIDING ACCOMMODATION ENTRIES. THE COMPANIES FLOATED BY SH. TARUN GOYAL ARE NOT CARRYING OUT ANY GENUINE ACTIVI TY AND ARE MERELY BEING USED TO PROVIDE ACCOMMODATION ENTRIES. DURING THE COURSE OF INVESTIGATIONS BY THE DIT(INV) IT WAS ALSO DISCOVERED THAT THE NETWORK' O F COMPANIES RUN BY SH. TARUN GOYAL IS ONLY DOING THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES TO VARI OUS BENEFICIARIES AND ARE NOT DOING ANY REAL BUSINESS, HENCE THESE COMPANIES ARE 'BOGUS'. ITA NO.6558/DEL/2014 7 IT IS NOTICED FROM THE LIST OF ENTRIES OF BENEFICI ARIES THAT THE ASSESSEE M/S R K GARG DEVELOPERS P LTD HAS TAKE N FOLLOWING ACCOMMODATION ENTRIES FROM THE COMPANY CONTROLLED BY SH. TARUN GOYAL AS PER DETAILS HEREUN DER:- BENEFICIARY NAME OF ENTRY PROVIDER AMOUNT RK GARG DEVELOPERS P LTD. TAJASVI INVESTMENTS P LTD. 7,00,000 IN VIEW OF THE REPORT RECEIVED FROM THE DITS(INV.) NEW DELHI, AND IN VIEW OF THE FACTS NARRATED ABOVE IT I S CLEAR THAT THE ASSESSEE HAD PROVIDED ITS OWN CASH TO ARRA NGE A CREDIT ENTRY FROM THE COMPANY CONTROLLED BY SH. TAR UN COYA1. THE CASH PROVIDED BY THE ASSESSEE REPRESENTS ITS OWN INCOME FROM UNDISCLOSED SOURCES. FURTHER, THE ASSESSEE HAD PAID COMMISSION FOR SUCH ARRANGEMENT, WHICH IN SUCH CASES IS AT 1%. THEREFORE, THE ASSESS EE HAD INCURRED AN EXPENDITURE OF RS.7,OOO/- FOR SUCH ARRANGEMENT WHICH IS MET OUT OF ITS WWN INCOME FROM UNDISCLOSED SOURCES. THUS, THE ASSESSEE HAS NOT DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS NECESS ARY FOR ITS ASSESSMENT FOR THAT ASSESSMENT YEAR. I HAVE THEREFORE, REASON TO BELIEVE THAT THE SUM OF RS.7,OO,OOO/-+RS.7,OOO/- CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THUS, THE SAME IS TO BE BROUGHT TO TAX UNDER SECTION 147/148 OF THE LT. ACT 1961.' ITA NO.6558/DEL/2014 8 8. AFTER GOING THROUGH THE REASONS RECORDED BY THE AO, AS AFORESAID, I AM OF THE VIEW THAT AO HAS NOT APPLIE D HIS MIND SO AS TO COME TO AN INDEPENDENT CONCLUSION THAT HE HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED DURING THE YEAR. IN MY VIEW THE REASONS ARE VAGUE AND ARE NOT BASED ON ANY TANGIBLE MATERIAL AS WELL AS ARE NOT ACCEPTABLE IN THE EYES OF LAW. THE AO HAS MECHANICALLY ISSUED NOTICE U/S. 148 OF THE ACT, ON THE BASIS OF INFORMATION ALLEGEDLY RECEIVED BY HIM FROM THE DIRE CTORATE OF INCOME TAX (INVESTIGATION), NEW DELHI. KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE A ND THE CASE LAW APPLICABLE IN THE CASE OF THE ASSESSEE, I AM OF TH E CONSIDERED VIEW THAT THE REOPENING IN THE CASE OF THE ASSESSEE FOR THE ASSTT. YEAR IN DISPUTE IS BAD IN LAW AND DESERVES TO BE QUASHED . MY VIEW IS SUPPORTED BY THE FOLLOWING JUDGMENT/DECISION:- PR. CIT VS. G&G PHARMA INDIA LTD. IN ITA NO. 545/2015 DATED 8.10.2015 OF THE DELHI HIGH COURT WHEREIN THE HONBLE COURT HAS ADJUDICATED THE ISSUE AS UNDER:- 12. IN THE PRESENT CASE, AFTER SETTING OUT FOUR EN TRIES, 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 ITA NO.6558/DEL/2014 9 INVESTIGATION, THE AO STATED: 'I HAVE 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 UNHELPFUL IN UNDERSTANDING WHET HER THE AO APPLIED HIS MIND TO THE MATERIALS THAT HE TA LKS ABOUT PARTICULARLY SINCE HE DID NOT DESCRIBE WHAT T HOSE MATERIALS WERE. ONCE THE DATE ON WHICH THE SO CALLE D ACCOMMODATION ENTRIES WERE PROVIDED IS KNOWN, IT WO ULD 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 ACCOUNTS OF THE ASSESSEE, WHICH MUST HAVE BEEN TEND ERED ALONG WITH THE RETURN, WHICH WAS FILED ON 14TH NOVE MBER 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 AO TO HA VE SIMPLY CONCLUDED: 'IT IS EVIDENT THAT THE ASSESSEE COMPANY HAS INTRODUCED ITS OWN UNACCOUNTED MONEY IN ITS BAN K BY WAY OF ACCOMMODATION ENTRIES'. IN THE CONSIDERED VI EW OF THE COURT, IN LIGHT OF THE LAW EXPLAINED WITH SUFFI CIENT CLARITY BY THE SUPREME COURT IN THE DECISIONS DISCU SSED HEREINBEFORE, THE BASIC REQUIREMENT THAT THE AO MUS T APPLY HIS MIND TO THE MATERIALS IN ORDER TO HAVE RE ASONS ITA NO.6558/DEL/2014 10 TO BELIEVE THAT THE INCOME OF THE ASSESSEE ESCAPED ASSESSMENT IS MISSING 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 MATERI ALS PRODUCED DURING THE HEARING OF THE APPEAL. THE COUR T WOULD LIKE TO OBSERVE THAT THIS IS IN THE NATURE OF A POST MORTEM EXERCISE AFTER THE EVENT OF REOPENING OF THE ASSESSMENT HAS TAKEN PLACE. WHILE THE CIT 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 T HE ASSESSMENT, THE AO HAS TO, APPLYING HIS MIND TO THE MATERIALS, CONCLUDE THAT HE HAS REASON TO BELIEVE T HAT INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. UNLE SS THAT BASIC JURISDICTIONAL REQUIREMENT IS SATISFIED A POST MORTEM EXERCISE OF ANALYSING MATERIALS PRODUCED SUBSEQUENT TO THE REOPENING WILL NOT RESCUE AN INHE RENTLY DEFECTIVE REOPENING ORDER FROM INVALIDITY . 14. IN THE CIRCUMSTANCES, THE CONCLUSION REACHED BY THE ITAT CANNOT BE SAID TO BE ERRONEOUS. NO SUBSTANTIAL QUESTION OF LAW ARISES. 15. THE APPEAL IS DISMISSED. ITA NO.6558/DEL/2014 11 9. IN VIEW OF ABOVE, I AM OF THE CONSIDERED VIEW TH AT THE AFORESAID ISSUE IN DISPUTE IS EXACTLY THE SIMILAR A ND IDENTICAL TO THE ISSUE INVOLVED IN THE PRESENT APPEAL AND IS SQU ARELY COVERED BY THE AFORESAID DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF G&G PHARMA (SUPRA). HENCE, RESPECTFULLY FO LLOWING THE ABOVE PRECEDENT IN THE CASE OF PR. CIT-4 VS. G&G PH ARMA INDIA LTD. (SUPRA) I DECIDE THE LEGAL ISSUE IN DISPUTE IN FAVOR OF THE ASSESSEE AND AGAINST THE REVENUE AND ACCORDINGLY QU ASH THE REASSESSMENT PROCEEDINGS AND ALLOW THE LEGAL ISSUE. SINCE I HAVE ALREADY QUASHED THE REASSESSMENT PROCEEDINGS, AS AF ORESAID, THE OTHER ISSUES ARE NOT BEING DEALT WITH BEING ACADEMI C IN NATURE. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 31-08-2016. SD/- (H.S. SIDHU) JUDICIAL MEMBER DATED : 31-08-2016 SR BHATANGAR COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A), NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.