NITIKA MAHAJAN,FARIDABAD V. ITO WARD 2(1), FARIDABAD

ITA 3147/DEL/2024

AI Insights

The case involves an appeal by Nikita Mahajan against the re-assessment order passed by the Income Tax Officer (ITO) for the assessment year 2016-17. The ITO had re-opened the assessment under section 147, alleging that the assessee had not filed a return and had engaged in transactions resulting in unexplained Long Term Capital Gains (LTCG). The Tribunal found that the ITO's belief was based on incorrect facts, as the assessee had indeed filed a return, and the approval for re-assessment was granted mechanically without proper application of mind. The Tribunal referenced several precedents where similar actions were deemed unsustainable due to incorrect factual basis and lack of proper sanction under section 151.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470451 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2016-2017
• Other Referred Cases: Arvind Sahdeo Gupta vs ITO-1, Kunwar Ayub Ali vs ITO, Jagbir Singh vs ITO, PCIT vs. N.C. Cables Ltd., Pr.CIT vs. Pioneer Town Planners Pvt. Ltd., CIT Jabalpur vs. M/s. S. Goyanka Lime and Chemicals Ltd., Manujendra Shah vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANDEEP PANWAR
• Assessee Lawyers: YUDHISHAR MEHTANI
• Keywords: Set aside; Unexplained cash credit; Reopening of assessment; Capital Gains; Accommodation entries; Competent authority; Reason to believe; Bogus
• Section: 147; 148; 144; 250

Judgement Text

"ITA No.3147/Del/2024 Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “E” BENCH: NEW DELHI BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI SUDHIR KUMAR, JUDICIAL MEMBER ITA No.3147/Del/2024 [Assessment Year : 2016-17] Nikita Mahajan H.No.1804, Sec-9, Faridabad Haryana-121006 PAN-AOMPM4404Q vs ITO Ward-2(1) Faridabad APPELLANT RESPONDENT Appellant by Shri Yudhishar Mehtani, CA Respondent by Shri Mandeep Panwar, Sr.DR Date of Hearing 08.01.2025 Date of Pronouncement 24.01.2025 ORDER PER PRADIP KUMAR KEDIA, AM : The instant appeal has been filed at the instance of the assessee seeking to assail the First Appellate order dated 12.06.2024 passed by the Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“CIT(A)”] u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 30.03.2022 passed u/s 147 r.w.s 144 r.w.s 144B of the Act pertaining to assessment year 2016-17. 2. As per the grounds of appeal, the assessee has challenged the legitimacy of jurisdiction assumed under s. 147 of the Act as well as additions made by the Assessing Officer (“AO”) towards Long Term Capital gain (“LTCG”) on sale of shares. 3. When the matter was called for hearing, the Ld. Counsel adverted to the assessment order and submitted at the outset that jurisdiction was assumed by the AO under s. 147 of the Act on the premise that the assessee has not filed any return of income for AY 2016-17 and in the absence of income tax return for the year under consideration, the nature of activities of the assessee cannot be ascertained. As alleged further the information monitoring system available on ITA No.3147/Del/2024 Page | 2 inside portal, the assessee has entered into transactions in LTCG which has been escaped assessment. 4. In this backdrop, the Ld. Counsel submitted that the whole basis of invoking s. 147 suffers from incorrigible legal infirmities. In order to transgress the very basis of formation of belief towards escapement, the Ld. Counsel adverted to the first para of the assessment order wherein the AO himself acknowledges that return for AY 2016-17 was filed on 02.08.2016 declaring total income of INR 6,40,160/- The Ld. Counsel also pointed out that the assessee has been regularly filing return of income in the earlier years also for which the relevant ITR acknowledgements are placed on record. Ld. Counsel thus asserted that the very foundation of re-opening the assessment on the ground that no return has been filed is factually incorrect and contrary to the records. Hence, the reasons recorded based on grossly incorrect facts do not permit the action under s. 147 of the Act. 4.1. On merits, the Ld. Counsel pointed out that the share transactions have been carried out through banking channels and the resultant capital gains being exempt are outside the purview of taxation. The Ld. Counsel thus contended that the so-called belief towards alleged escapement is nothing but a mere pretence. 4.2. The Ld. Counsel thereafter adverted to the judgement refereed by the Hon’ble Bombay High Court in the case of Arvind Sahdeo Gupta vs ITO-1 Writ Petition No.4793 of 2021 judgement dated 08.08.2023 for the proposition that re- opening of assessment based on incorrect facts are unsustainable in law. Similar view has been expressed by the Co-ordinate Bench of the Tribunal in the case of Kunwar Ayub Ali vs ITO in ITA No.3137/Del/2018 (Del.) order dated 17.04.2023 which has been rendered in the similar facts. In that case also, the reasons towards escapement of chargeable income were recorded on the belief that the assessee has not filed the return of income which was found to be grossly contrary to the facts on record. The notice issued under s. 148 of the Act was thus quashed being issued on the basis of inherently wrong facts. The Ld. Counsel thus canvassed that the jurisdiction usurped under s. 147 is a unsustainable at the threshold. Besides, the additions made do not square with facts either. ITA No.3147/Del/2024 Page | 3 4.4. The Ld. Counsel thereafter adverted to the sanction so accorded by the Addl.CIT and submitted that a generic and cosmetic approval “I am satisfied that it is a fit case for the issue of notice u/s 148 of the Income Tax Act, 1961.” Such expressions apparently smacks of a colourless and listless sanction, devoid of iota of reflection towards application of mind, if any. The Ld. Counsel pointed out that various Courts and Tribunals have repeatedly frowned upon such sterile approval in the context of s.151 and quashed the re-assessment notice on the grounds of non-application of mind by the sanctioning authority by holding such perfunctory approval as nonest in the eyes of law. 4.5. Delving further the Ld. counsel submitted that the jurisdictional High Court as well as the Hon'ble Courts of different jurisdictions have echoed in chorus that simply noting down the expressions such as 'Yes' or ‘action under section 148 approved’ etc. against the column of sanction without application of mind being discernible, cannot be considered to be a proper and valid sanction by the Competent Authority. The Ld. counsel referred to judgments rendered in the case of PCIT vs. N.C. Cables Ltd., 391 ITR 11 (Delhi); Pr.CIT vs. Pioneer Town Planners Pvt. Ltd., ITA No.91/2019 judgment dated 20.02.2014 (Delhi High Court); CIT Jabalpur vs. M/s. S. Goyanka Lime and Chemicals Ltd., ITA No.82 of 2012 judgment dated 14.01.2014 (M.P. High Court) (SLP by the Revenue dismissed in CIT vs. S. Goyanka Lime and Chemicals Lid.. (2023) 453 ITR 242 (SC); Manujendra Shah vs. CIT, WP(C) 12677/2018 judgment dated 18.07.2023 and plethora of Co- ordinate Bench judgments to contend that the Competent Authority while discharging statutory obligation under s. 151 of the Act is not expected to function mechanically and accord sanction on dotted lines. The satisfaction of the Competent Authority must be recorded with some degree of objectivity based on some objective material. The Ld. Counsel thus submitted that on this ground alone, the issuance of notice under s. 148 based on a cryptic sanction is vitiated and consequently, the assessment order framed as a sequel thereto, is rendered bad in law. 4.6. The Ld. Counsel thus submitted that the AO proceeded on wholly wrong foundation that no return has been filed. The Addl. CIT has also granted ITA No.3147/Del/2024 Page | 4 mechanical approval to such mundane reasons. Thus, the assumption of jurisdiction under s. 147 is vitiated on both counts independent of each other. 5. The Ld. Sr. DR for the Revenue on the other hand supported the action of the Revenue authorities. 6. We have carefully weighed the rival contentions on the preliminary challenge to the assumption of jurisdiction under s. 147 of the Act and perused the material available on record. 6.1. The reasons recorded by the AO for issuance of notice under s. 148 of the Act are reproduced as under:- 1. “On-perusal of the e-filing portal, it is found that the assessee has not filed any return of income for the A.Y. 2016-17. In absence of any ITR for the year under consideration, the nature of business activity of the assessee, if any, cannot be ascertained. 2. As per Actionable Information monitoring System available on Insight Portal, it has been found that the assessee has made transaction in bogus Long term Capital gain through reputed stocks by issuing ante dated forged contract notes during Financial Year 2015-16 relevant to A.Y. 2016-17. The assessee is one such beneficiary who has obtained accommodation entries amounting to Rs.2,24,00,700/- in the form of bogus Long Term Capital Gain through penny stock from sale of script M/s Yamini Investments Company Limited during the year under consideration. 3. To bring the above information available with department to the knowledge of assessee, a letter was issued to the assessee requiring thereby furnishing response in this regard. It was specifically mentioned that if no response is received, appropriate proceedings under the Income Tax Act, 1961 may be initiated. The assessee has not given any details of receipts on account of sale of shares of script M/s Yamini Investments Company Limited. 4. In absence of any response, prima-facie it is clear that the assessee has obtained bogus accommodation entry through penny stock of M/s ITA No.3147/Del/2024 Page | 5 Yamini Investments Company Limited which has been unravelled by the investigation wing of department to be engaged in providing bogus entry of sale of shares and the same is liable to be treated as unexplained credits received on account of sale of share of M/s Yamini Investments Company Limited during the F.Y. 2015-16 relevant to A.Y. 2016- 17. Furthermore, it is evident that there is a \"Live Link\" between the material available on record and the escaped Income, as mentioned above. 5. In this case the income declared by the assessee is not the true income of the assessee for the year under consideration and the only requirement to initiate proceeding u/s 147 is reason to believe which has been recorded in this case. In view of the above, the provisions of clause (a) of Explanation 2 of section 147 are applicable to facts of the case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment on the failure on the part of assessee to not disclose all material facts fully and truly during the course of assessment. 6. Keeping in view the statutory provisions, legal principles, and factual matrix that the nature of income declared does not reflect the true and actual income generated by the assessee on account of bogus accommodation entry of sale of penny stock. Therefore, I have reason to believe that the income to the extent of Rs.2,24,00,700/- chargeable to tax, has escaped assessment for the assessment year 2016-17 within the meaning of section 147 of the Income Tax Act, 1961. In order to assess the above income or any other income which comes to my notice subsequently in the course of assessment proceedings u/s 147, I proceed to initiate proceedings u/s 147 of the I.T. Act, 1961 in the case for A.Y. 2016-17.” Approval Details Name UMESH CHANDRA BHARTI Designation Range-1, Faridabad Approval Status Approved ITA No.3147/Del/2024 Page | 6 Date of Approval 30.03.2021 Remarks of approving authority Considering the reasons recorded by the Assessing Officer as per Annexure, I am satisfied that it is a fit case for the issue of notice u/s 148 of the Income Tax Act, 1961. Approval is hereby accorded for issue of notice u/s 148 of the Income Tax Act, 1961. 6.2. As pointed out on behalf of the assessee, the belief towards escapement of chargeable income has been entertained by the AO on the basis that the assessee has not filed the return of income for AY 2016-17 in question which is grossly contrary to the facts on record. It is demonstrated on behalf of the assessee that the assessee has duly filed return of income on 02.08.2016. Hence, the most basic reason of holding belief itself is wholly incorrect. The basis that return of income has not been filed giving rise to the reason to belief towards escapement in the reasons recorded is itself contradicted by the AO himself in the assessment order where it categorically notes that the assessee had filed return of income for AY 2016-17 on 02.08.2016, declaring total income of INR 6,40,160/-. Thus, the reasons have been recorded grossly contrary to the facts on record. Hence, the most basic reasons of holding belief in itself is wholly incorrect and not existed at the time of recording of reasons dated 30.03.2021. 7. ‘Reason to believe’ is the starting point for re-opening a case. A freak foundation or reason that assessee did not file ROI is blatantly contrary to the facts. Belief stemmed from wholly unfounded reasons thus betrays the pre- requisites of s. 147 of the Act. We find that the issue is squarely covered in favour of the assessee by the judgements rendered in the case of Arvind Sahdeo Gupta vs ITO-1 and Kunwar Ayub Ali vs ITO (supra) by the Co-ordinate Bench wherein several judgements of the Hon’ble High Courts of different jurisdictions have been referred and it was held that where the reasons cited that the assessee did not file the return of income was found to be factually incorrect, the notice issued under s. 148 of the Act for re-opening of assessment requires to be quashed for assumption of jurisdiction on extraneous grounds. 8. In the light of the judgements rendered in the case of Arvind Sahdeo Gupta vs ITO-1 (supra) and Kunwar Ayub Ali vs ITO (supra) expounding the position of law, we find palpable merit in the plea of the assessee towards inherent lack of jurisdiction under s. 147 of the Act. ITA No.3147/Del/2024 Page | 7 9. We not also advert to the other challenge to assumption of jurisdiction allegedly without meeting the pre-requisites of s.151 of the Act. 10. The assessee contends that the Addl.CIT/JCIT has expressed satisfaction and accorded approval mechanically without any semblance of objectivity in his action. We notice that in similar facts situation, the Co-ordinate Bench of Tribunal in the case of Jagbir Singh vs ITO in ITA No.3833/Del/2023 dated 08.01.2025 has disapproved mechanical approval placing reliance on the judgments of Hon’ble Delhi High Court in the case of N.C. Cables; Pioneer Town Planners; Manujendra Shah (supra). 11. In consonance with the view expressed in Jagbir Singh (supra), we see palpable merit in the plea of the assessee that the sanction granted under s. 151 of the Act is extraneous and an empty formality and do not accord with its salutary purpose. The requirement of law is to grant speaking approval under s. 151 of the Act which is not found to be fulfilled. The notice issued under s. 148 as a sequel to such sanction and resultant assessment is thus vitiated in law. 12. We thus disposed to hold that the impugned re-assessment order passed on re-assessment proceedings under s. 147 is bad in law on both counts: (i) reasons based on grossly wrong facts & (ii) mechanical approval under s. 151 of the Act. Hence, the jurisdiction usurped by the AO under s. 147 is required to be cancelled and set aside. 13. This being so, other aspects touching the merits are rendered academic and hence, not adjudicated. The additions made in a nonest re-assessment order thus merges in void. 14. In the result, the appeal of the assessee is allowed. Order dictated and pronounced in the open Court on 24.01.2025. Sd/- Sd/- (SUDHIR KUMAR) JUDICIAL MEMBER *Amit Kumar, Sr.P.S* (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER ITA No.3147/Del/2024 Page | 8 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "