Sehrawat Associates (P) Ltd., New Delhi V. ITO, New Delhi

ITA 665/DEL/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6368 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 22-12-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 06-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJA
• Assessee Lawyers: R S AHUJA
• Keywords: Question of law; Validity of assessment; Accommodation entries; Reason to believe; Borrowed satisfaction
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC-I NEW DELHI BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 665/DEL/2014 AY: 20 05-06 SEHRAWAT ASSOCIATES (P) LTD., VS INCOME T AX OFFICER, VILLA NO. 42, WARD 8(1), DWARKA, NEW DELHI. NEW DELHI. (PAN: AAICS3200M) (APPELLANT) (RESPONDEN T) APPELLANT BY : SHRI R.S. AHUJA, ADV. RESPONDENT BY : SHRI P. DAMKANUNJA, SR. DR DATE OF HEARING: 22.12.2015 DATE OF PRONOUNCEMENT: 15.03.2016 ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 25.11.2013 OF LD. CIT(A)-XI, NEW DELHI FOR AS SESSMENT YEAR 2005-06 ON THE FOLLOWING GROUNDS OF APPEAL:- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED ITO & CIT(A) ERRED IN: (A) ASSUMING JURISDICTION U/S 148 OF THE IT ACT 1 961 IN THE ABSENCE OF RELEVANT INFORMATION WITH HIM LEADING TO FORMATION OF BELIEF THAT THE INCOME HAD ESCAPED ASSESSMENT. (B) MAKING AN ADDITION OF RS.10,01,045/- IN THE RETURNED INCOME OF THE ASSESSEE COMPANY BY TREATING THE AMOUNT OF SHARE APPLICATION MONEY AS ACCOMMODATION ENTRIES AMOUNT. I.T.A. NO. 665/D/2014 ASSESSMENT YEAR: 2005-06 2 (C) IGNORING THE FACT THAT SHAREHOLDER COMPANIES HA VE BEEN STRUCK OF THE RECORDS OF REGISTRAR OF COMPANIE S BUT STILL THE CONFIRMATIONS OF ITS THEN DIRECTORS D ATED 12.02.2013 IS ON RECORDS. (D) IGNORING THE FACT THE SHAREHOLDER'S EXISTENCE AT THE TIME OF REMITTANCE OF SHARE APPLICATION MONEY, THE ALLOTMENT OF SHARES AND CONFIRMATION OF THE ABOVE G IVEN BY THE DIRECTORS OF THE DEFUNCT SHAREHOLDER COMPANY ON 12.02.2013 HAS BEEN ON RECORDS. (E) THAT SINCE THE SHAREHOLDERS WERE NOT PRESENT I N PERSON BEFORE THE AO, THE SHARE APPLICATION MONEY AMOUNT CANNOT BE TREATED AS INCOME BY THE LEARNED AO. (F) THAT ASSESSEE DISCHARGED ITS ONUS BY PROVIDI NG THE ADDRESSES OF THE THEN DIRECTORS OF THE DEFUNCT INVESTEE COMPANIES BUT SINCE THE ASSESSEE HAS NO AUTHORITY/ POWER/ RIGHTS TO FORCE ANY PERSON/ ENTIT Y TO COMPLY WITH THE PROCEEDINGS INITIATED BY THE INCOME TAX DEPARTMENT, DOESN'T MAKE ASSESSEE LIABLE FOR AN Y PENAL ACTIONS. 2. IN GROUND NO. 1(A), VALIDITY OF ASSESSMENT FR AMED UNDER SEC. 147 OF THE INCOME-TAX ACT, 1961 HAS BEEN QUESTIONED . WE THUS PREFER TO ADJUDICATE UPON THIS GROUND FIRST. 3. THE ASSESSEE HAD FILED ITS RETURN OF INCOME AT R S. 3,15,000/- INITIALLY ON 15.06.2005. SUBSEQUENTLY, ON THE BASIS OF INFORMATION RECEIVED FROM DIT (INV), NEW DELHI, THE ASSESSING OFFICER INITIATED PROCEEDINGS UNDER SEC. 147 OF THE INCOME-TAX ACT, 1961 AND BEING NOT SATISFIED WITH THE EXPLANAT ION OF THE ASSESSEE REGARDING ENTRIES OF RS. 10,01,045/- FROM STATE BANK OF BIKANER & JAIPUR, NEW ROHTAK ROAD OF M/S TOSHA CHEM ICALS AND VR TRADERS PVT. LTD., ADDED THE SAID AMOUNT IN THE TOTAL I.T.A. NO. 665/D/2014 ASSESSMENT YEAR: 2005-06 3 INCOME OF THE ASSESSEE. BEFORE THE LD. CIT(A), THE ASSESSEE HAD RAISED OBJECTION AGAINST THE VALIDITY OF INITIATION OF REOPENING PROCEEDINGS BUT COULD NOT SUCCEED. HENCE, THE SAME HAS BEEN QUESTIONED BEFORE THE ITAT. 4. IN SUPPORT OF THE GROUND ON THE ISSUE, THE LEAR NED AR SUBMITTED THAT THE REASONS RECORDED UNDER SEC. 148( 2) OF THE INCOME-TAX ACT, 1961 IN THE PRESENT CASE ARE BASED ON BORROWED SATISFACTION OF DIT (INV), NEW DELHI, HENCE, THE VERY INITIATION OF PROCEEDINGS UNDER SEC. 147 OF THE ACT IS BAD IN LAW . 4.1 THE LEARNED AR CONTENDED FURTHER THAT THERE WAS NO APPLICATION OF HIS OWN MIND BY THE ASSESSING OFFICE R FOR FORMATION OF BELIEF HIMSELF THAT INCOME HAD ESCAPED ASSESSMENT AS IT IS VERY MUCH EVIDENT FROM THE REASONS RECORDE D THAT HIS ACTION WAS SOLELY BASED UPON THE INFORMATION RECEIV ED FROM THE INVESTIGATION WING. 4.2 IN SUPPORT, THE LEARNED AR REFERRED THE CONTEN TS OF THE REASONS RECORDED AND REPRODUCED AT PAGE NO.1 OF THE ASSESSMENT ORDER. HE POINTED OUT THAT THE REASONS RECORDED A LLEGED THAT AN AMOUNT OF RS.6,00,600/- HAS ESCAPED ASSESSMENT, WHE REAS THE ADDITION HAS BEEN MADE FOR RS.10,01,045/-. I.T.A. NO. 665/D/2014 ASSESSMENT YEAR: 2005-06 4 4.3 THE LEARNED AR SUBMITTED THAT THERE WAS NO APPLICATION OF MIND BY THE ASSESSING OFFICER IS EVIDENT FROM THE T ELLTALE EVIDENCE ON RECORD. IN SUPPORT OF HIS CONTENTIONS, THE LEARN ED AR PLACED RELIANCE ON THE FOLLOWING DECISIONS AS WELL: I) ANDAMAN TIMBER IND. VS. CIT - CIVIL APPEAL NO. 422 8 OF 2006 - ORDER DATED 02.09.2015 (S.C); II) PR. CIT VS. G&G PHARMA INDIA LTD. - ITA 545/2015 - ORDER DATED 08.10.2015 (DEL.); 5. THE LEARNED SENIOR DR ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE. HE SU BMITTED THAT IN THE REASONS RECORDED, SPECIFIC INFORMATION WAS T HERE AGAINST THE ASSESSEE AND THE ASSESSING OFFICER HAD APPLIED HIS MIND BEFORE RECORDING OF REASONS. THE LEARNED SENIOR DR CONTENDED THAT SUFFICIENCY OF APPLICATION OF MIND IS NOT REQU IRED TO BE CONSIDERED AT THE STAGE OF RECORDING OF REASONS. 6. HAVING GONE THROUGH THE ABOVE CITED DECISIONS, ESPECIALLY THE RECENT DECISIONS OF HONBLE JURISDICTIONAL HIGH COU RT OF DELHI IN THE CASE OF CIT VS. G&G PHARMA INDIA LTD. (SUPRA), WE FIND THAT THE HON'BLE HIGH COURT AFTER DETAILED DISCUSSION ON THE ISSUE AND AFTER DISCUSSING SEVERAL DECISIONS CITED BEFORE THE HONBLE I.T.A. NO. 665/D/2014 ASSESSMENT YEAR: 2005-06 5 COURT HAS BEEN PLEASED TO COME THE FOLLOWING CONCLU SION VIDE PARA NOS. 12 AND 13 OF THE DECISION, WHICH ARE RELE VANT TO ADJUDICATE UPON THE ISSUE RAISED BEFORE US IN THE P RESENT CASE, ARE BEING REPRODUCED HEREUNDER: 12. IN THE PRESENT CASE, AFTER SETTING OUT FOUR EN TRIES, STATED TO HAVE BEEN RECEIVED BY THE ASSESSEE ON A SINGLE DATE I.E. 10 TH FEBRUARY 2003, FROM FOUR ENTRIES WHICH WERE TERMED AS ACCOMMODATION ENTRIES, WHICH INFORMATION WAS GIVEN TO HIM BY THE DIRECTORATE OF INVESTIGATION, THE A.O. STATED: I HAVE ALSO PERUSE D VARIOUS MATERIALS AND REPORT FROM INVESTIGATION WIN G 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 WHETHER THE A.O. APPLIED HIS MIND TO THE MATERIALS THAT HE TALKS ABOUT PARTICULARLY SINC E HE DID NOT DESCRIBE WHAT THOSE MATERIALS WERE. ONCE TH E DATE ON WHICH THE SO CALLED ACCOMMODATION ENTRIES WERE PROVIDED IS KNOWN, IT WOULD NOT HAVE BEEN DIFFICULT FOR THE A.O., IF HE HAD IN FACT UNDERTAKE N THE EXERCISE, TO MAKE A REFERENCE TO THE MANNER IN WHIC H THOSE VERY ENTRIES WERE PROVIDED IN THE ACCOUNTS OF THE ASSESSEE, WHICH MUST HAVE BEEN TENDERED ALONG WITH THE RETURN, WHICH WAS FILED ON 14 TH NOVEMBER 2004 AND WAS PROCESSED UNDER SEC. 143(3) OF THE ACT. WITHOUT FORMING A PRIMA FACIE OPINION, ON THE BASIS OF SUCH MATERIAL, IT WAS NOT POSSIBLE FOR THE A.O. 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 TH E CONSIDERED VIEW OF THE COURT, IN LIGHT OF THE LAW EXPLAINED WITH SUFFICIENT CLARITY BY THE HON'BLE SUPREME COURT IN THE DECISIONS DISCUSSED HEREINBEFORE, THE BASIC REQUIREMENT THAT THE A.O. M UST APPLY HIS MIND TO THE MATERIALS IN ORDER TO HAVE I.T.A. NO. 665/D/2014 ASSESSMENT YEAR: 2005-06 6 REASONS 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 LEARNED CIT(APPEALS) TO SHOW HOW THE CIT(A) DISCUSSED THE MATERIALS PRODUCED DURING THE HEARING OF THE APPEAL. THE COURT WOULD LIKE TO OBSERVE THAT TH IS IS IN THE NATURE OF A POST MORTEM EXERCISE AFTER THE EVEN T OF REOPENING OF THE ASSESSMENT HAS TAKEN PLACE. WHILE THE CIT MAY HAVE PROCEEDED ON THE BASIS THAT THE REOPEN ING OF THE ASSESSMENT WAS VALID, THIS DOES NOT SATISFY THE REQUIREMENT OF LAW THAT PRIOR TO THE REOPENING OF T HE ASSESSMENT, THE A.O. HAS TO APPLY 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 ANALYZING MATERIALS PRODUCED SUBSEQUENT TO THE REOPENING WILL NOT RESCUE AN INHE RENTLY DEFECTIVE REOPENING ORDER FROM INVALIDITY. 14. IN THE CIRCUMSTANCES, THE CONCLUSION REACHED B Y THE ITAT CANNOT BE SAID TO BE ERRONEOUS. NO SUBSTANTIAL QUESTION OF LAW ARISES. 7. NOW, WE HAVE TO EXAMINE THE REASONS RECORDED I N THE PRESENT CASE BEFORE US IN VIEW OF THE RATIOS LAID DOWN IN T HE ABOVE CITED DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT R ECENTLY PRONOUNCED ON 08.10.2015 TO VERIFY THE CONTENTION O F THE LEARNED AR THAT WHILE FORMING THE BELIEF THAT INCOM E CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT ON THE BASIS OF INFOR MATION RECEIVED BY IT, THE ASSESSING OFFICER HAS NOT APPLI ED HIS MIND. THE REASONS RECORDED IN THE PRESENT CASE BY THE ASS ESSING OFFICER I.T.A. NO. 665/D/2014 ASSESSMENT YEAR: 2005-06 7 FOR THE PURPOSE ARE BEING REPRODUCED HEREUNDER: INFORMATION HAS BEEN RECEIVED FROM DIT(INV), NEW DELHI THAT M/S SEHRAWAT ASSOCIATES (P) LTD.. NEW DELHI HAS BEEN BENEFICIARY OF ACCOMMODATION ENTRIES BEING PROVIDED BY CERTAIN ENTRY OPERATORS. ON THE BASIS OF THE INFORMATION CHART FORWARDED BY THE DIT(INV.) NEW DELHI IT IS SEEN THAT THE ASSESSEE IS INVOLVED IN THE FOLLOWING BOGUS TRANSACTIONS DETAIL ED IN THE CHART FORWARDED BY THE DIT(INV.) NEW DELHI. BENEFICIARY NAME BENEFICIARY BANK NAME M/S SEHRAWAT ASSOCIATES (P) LTD. STATE BANK OF BIKANER & JAIPUR BENEFICIARY BANK BRANCH VALUE OF ENTRY TAKEN RS. 10,01,045/ - INSTRUMENT NO. BY WHICH ENTRY TAKEN TRANSFER CHQ. 00204342. TRANSFER CHQ. 00761046, TRANSFER CHQ. 00761077 DATE ON WHICH ENTRY TAKEN 31.05.2004, 31.05.2004, 02.06.2004 NAME OF ACCOUNT HOLDER OF ENTRY GIVING ACCOUNT TOSHA CHEMICAL, V R TRADERS PVT. LTD., V R TRADERS PVT. LTD. NAME OF ENTRY GIVEN BANK SBBJ, NEW ROHTAK ROAD ACCOUNT NO. ENTRY GIVING ACCOUNT 21782, 21781 I HAVE, THEREFORE REASON TO BELIEVE THAT AN AMOUNT OF RS. 6,00,000/- HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE INCOME TAX ACT, 1961. SINCE 4 YEARS HAVE BEEN ELAPSED, THE FACTS ARE SUBMITTED FOR YOUR KIND PERUSAL AND APPROVAL OF THE ADDL./JT. CIT, RANGE-8, NEW DELHI AS PER SECTION 151(2) OF THE INCOME TAX ACT, 1961 FOR ISSUANCE OF NOTICE U/S 148 OF THE INCOME TAX ACT. 8. THE VERY PERUSAL OF THE REASONS, IT IS APPAREN T THAT THESE WERE BASED ON THE INFORMATION RECEIVED FROM DIT(INV), NE W DELHI AFTER NARRATION OF WHICH, THE ASSESSING OFFICER HAS SIMPL Y RECORDED I.T.A. NO. 665/D/2014 ASSESSMENT YEAR: 2005-06 8 THAT HE HAD REASON TO BELIEVE THAT AMOUNT/INCOME OF RS. 6.06 LACS HAS ESCAPED ASSESSMENT FOR THE ASSESSMENT YEAR 2005-06 FOR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT WITHIN THE MEANING OF SEC. 147 OF THE INCOME-TAX ACT, 1961. NOTICE UNDER SEC. 148 OF THE ACT HAS ACCORDINGLY BEEN ISSUED BY THE ASSESSIN G OFFICER. IN THE ABOVE CITED DECISIONS OF THE HON'BLE HIGH COURT , IT HAS BEEN OBSERVED BY THE HON'BLE HIGH COURT THAT SUCH TYPE O F CONCLUSION IS UNHELPFUL IN UNDERSTANDING WHETHER THE ASSESSING OFFICER HAD APPLIED HIS MIND TO THE MATERIALS THAT HE TALKS ABO UT PARTICULARLY SINCE HE DID NOT DESCRIBE WHAT THOSE MATERIAL WERE. HON'BLE HIGH COURT HAS OBSERVED FURTHER THAT ONCE THE DATE ON WH ICH 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 ACCOU NTS OF THE ASSESSEE. IT WAS HELD THAT 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. THE BASIC REQUIREMENT I.T.A. NO. 665/D/2014 ASSESSMENT YEAR: 2005-06 9 IS THAT THE ASSESSING OFFICER MUST APPLY HIS MIND T O THE MATERIAL IN ORDER TO FORM REASONS TO BELIEVE THAT THE INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. SUCH BASIC REQUIRE MENT WHILE RECORDING THE REASONS FOR INITIATION OF PROCEEDINGS UNDER SEC. 147 OF THE ACT IS MISSING IN THE PRESENT CASE BEFORE US . AS IT IS EVIDENT IN THE REASONS RECORDED, REPRODUCED HEREINABOVE, TH E ASSESSING OFFICER HAS SIMPLY RECORDED THE INFORMATION RECEIVE D FROM THE INVESTIGATION WING AND WITHOUT MAKING ANY EXERCISE OF HIS MIND ON THOSE INFORMATION TO FORM HIS OWN REASONS TO BEL IEVE FOR THE ESCAPED ASSESSMENT OF RS. 6.06 LACS, HAS ISSUED NOT ICE UNDER SEC. 148 OF THE ACT. WE, RESPECTFULLY FOLLOWING TH E RATIOS LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT OF DE LHI IN THE CASE OF CIT VS. G&G PHARMA INDIA LTD. (SUPRA), HOLD THAT THE REASONS TO BELIEVE RECORDED BY THE ASSESSING OFFICER IN THE PRESENT CASE TO INITIATE THE PROCEEDINGS UNDER SEC. 147 OF THE ACT WITHOUT APPLICATION OF HIS OWN MIND ON THE INFORMATION RECE IVED WERE NOT AS PER THE REQUIREMENT OF THE PROVISIONS OF THE LAW LAID DOWN UNDER SEC. 147 OF THE ACT, HENCE, THE INITIATION OF THE PROCEEDINGS WAS NOT VALID AND NOR THE ASSESSMENT MADE IN FURTHE RANCE TO THE SAID INITIATION OF THE PROCEEDINGS. THE ASSESSMENT FRAMED UNDER SEC. 147 READ WITH 143(3) OF THE ACT IN THE PRESENT CASE IN I.T.A. NO. 665/D/2014 ASSESSMENT YEAR: 2005-06 10 QUESTION IS THUS HELD AS VOID-AB-INITIO. THE GROUND NO. 1 (A) IS ACCORDINGLY ALLOWED. 9. IN VIEW OF THE ABOVE FINDINGS, HOLDING THE VER Y ASSESSMENT ORDER IN QUESTION AS VOID, THE ISSUE RAISED IN THE REMAINING GROUNDS QUESTIONING THE VALIDITY OF ADDITION OF RS. 10,01,045/- MADE BY THE ASSESSING OFFICER HAVE BECOME INFRUCTUO US. THESE GROUNDS ARE ACCORDINGLY DISPOSED OF. 10. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH OF MARCH, 2016. SD/- SD/- (J.S. REDDY) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 15TH OF MARCH, 2016 GS COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER ASSTT. REGISTRAR