REGIS INDUSTRIES LIMITED,KOLKATA V. I.T.O., WARD - 8(1), KOLKATA

ITA 972/KOL/2024

AI Insights

The case involves Regis Industries Limited appealing against the order of the National Faceless Appeal Centre, Delhi, which had upheld the reopening of their assessment for the Assessment Year 2009-10. The reopening was based on information from the ITO (Inv.), Unit-1, Kolkata, suggesting that the assessee received unexplained cash credits. The Tribunal examined the legality of the reopening, focusing on whether the Assessing Officer had applied his mind independently to the information received and whether the reasons recorded for reopening were sufficient and clear. The Tribunal concluded that the reasons were vague and the reopening was based on borrowed satisfaction, leading to the quashing of the reopening and the assessment order.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314057 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Other Referred Cases: CIT vs. Insecticides (India) Ltd., Commissioner of Income-tax vs. SFIL Stock Broking Ltd., Signature Hotels (P.) Ltd. vs. Income-tax Officer, Assistant Commissioner of Income-tax, Circle, Khanna vs. Kisco Casting (P.) Ltd., Dr Ajit Gupta vs. ACIT, Hindustan Lever Ltd. vs. R. B. Wadkar, ACIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVEEN KISHORE
• Assessee Lawyers: ABHISHAK BANSAL
• Keywords: Difference of opinion; Change of opinion; Reassessment proceedings; Unexplained cash credit; Onus to prove; Reopening of assessment; Reason to believe; Tangible material; Borrowed satisfaction
• Section: 147; 148; 142(1); 68; 69

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRI SONJOY SARMA, JM ITA No.972/KOL/2024 (Assessment Year: 2009-10) Regis Industries Limited Avani Signature, 91A/1, Park Street, Room No.301/A/4, Kolkata, West Bengal, 700016 Vs. I.T.O., Ward - 8(1) Aayakar Bhawan, 5th Floor, P-7, Chowringhee Square, Kolkata, West Bengal, 700069 (Appellant) (Respondent) PAN No. AABCB1368G Assessee by : Shri Abhishak Bansal, AR Revenue by : Shri Praveen Kishore, DR Date of hearing: 20.02.2025 Date of pronouncement : 07.05.2025 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 28.02.2024 for the AY 2009-10. 02. The assessee has raised 19 grounds of appeal, however, at the time of hearing, the assessee pressed the legal issue raised in ground no.6 and 7 and ground no.10 to 16, which are on merit. 03. The issue raised in ground no.6 is against the reopening of assessment on the basis of approval granted by ld. PCIT in mechanical manner without application of mind and the issue raised in ground no.7 is against the reopening of assessment u/s 147 merely based on the information received from ITO Inv. Unit-1 Kolkata Page | 2 ITA No.972/KOL/2024 Regis Industries Limited; A.Y. 2009-10 considering the same as gospel truth without any independent enquiry/application of mind by the ld. Assessing Officer. 04. The facts in brief are that the assessee filed the return of income on 30.09.2009, declaring the total income of ₹35,316/-, which was processed u/s 143(1) of the Act. Thereafter the ld. AO reopened the case of the assessee u/s 147 of the Act by issuing notice u/s 148 of the Act on 29.07.2016, after receiving a letter dated 16.03.2016, from ITO (Inv.), unit-1, Kolkata, in which it was stated that assessee received money after huge cash was deposited in the individuals current account and proprietary concerns from which the assessee has received ₹3.64 crores. The assessee submitted the acknowledgement of ITR of the assessee on 04.08.2016. Thereafter the statutory notices along with notice u/s 142(1) of the Act and questionnaire were issued and duly served upon the assessee. The assessee submitted before the ld. AO from time-to-time various documents/evidences as called for by the ld. AO. The AO noted that as per the ITO(inv.) Unit-1, Kolkata, the assessee has received ₹3.64 crores from individual current accounts and or current accounts of proprietary concerns in which huge cash was deposited before transferring the money to the assessee company routed through from M/s Mapple Advisory Services Pvt. Ltd, M/s Zenith Management Pvt. Ltd, Jupiter Tradelink Pvt. & Others. Accordingly, The AO after examining the evidences called upon the assessee to furnish the details of shares sold during the instant financial year which were accordingly furnished by the assessee. The ld. AO noted that the assessee has sold quoted and unquoted equity shares of substantial amount and sales consideration was deposited into its bank account with IDBI bank during the F.Y. 2013-14. Thereafter the ld. AO gave the details of shares sold by the assessee aggregating to ₹11,55,75,000/-. Finally, on the basis of Page | 3 ITA No.972/KOL/2024 Regis Industries Limited; A.Y. 2009-10 information received by the ITO, Unit-1, Kolkata, the ld. AO came to the conclusion that the monies received from sale of shares of ₹11,55,75,000/- were deposited in the IDBI bank was nothing but unexplained cash credit u/s 68 of the Act as this is assessee’s own money received in the form of sale of shares and accordingly, the same was added to the income of the assessee. Similarly, the addition of ₹4,86,82,814/-, was made on account of deposits into the IDBI Bank by the assessee. The submission of the assessee was that the assessee received sale consideration for sale of quoted and unquoted shares and these deposits were out of sale proceeds of said shares. However, the ld. AO treated the same as unexplained bank deposits u/s 69 of the Act and added ₹ 4,86,82,849/- to the income of the assessee. Similarly, the ld. AO found that there was some discrepancy in the cash-in-hand and accordingly same was also added to the extent of Rs. 42,05,909/- as unexplained cash credit u/s 68 of the Act. 05. In the appellate proceeding, the ld. CIT (A) dismissed the appeal of the assessee after calling for the remand report from the ld. AO which was duly furnished by the ld. AO and also confronted to the assessee for which the assessee duly replied which is available in the paper book page no. 114 to 117 of PB. The legal issue raised by the assessee is dismissed by the ld. CIT (A) by observing and holding as under:- 7.1 Ground No: 1 to 6 relate to reopening of assessment: On scrutiny of the reasons recorded, no fault could be found with the assessing officer either in recording the satisfaction or in compliance with the provisions of the Act or with the procedure laid down by judge made law. There is no room for any doubt that the information would prompt any reasonable person to come to the same conclusion as that of the AO. The outcome of the assessment also fortifies the same. Therefore, the allegation that AO was guided/dictated by the other officials and without independent application of mind and there was a change of opinion are dismissed as devoid of merit. Page | 4 ITA No.972/KOL/2024 Regis Industries Limited; A.Y. 2009-10 These grounds are therefore dismissed. 06. The ld. AR vehemently submitted before us that the order passed by the ld. CIT (A) is perverse and against the facts available on record. The ld. AO received information from ITO (Inv.), Unit-1, Kolkata that the assessee has received ₹3.64 crores after deposit of cash at source either in individual current account or proprietorship account maintained with ICICI Bank Ltd. The transactions pattern indicated that the assessee company was sold out or transferred to the beneficiaries and in process directors/ management of the company had also been changed and the investments made in equity of private limited company or unquoted companies have been sold against funds received by the assessee by depositing cash at source in individual or proprietorship account. Thereafter, the ld. AO considering the above facts formed and recorded reasons to believe that the income of the assessee to the extent of ₹3.64 crores with ICICI Bank has escaped assessment within the meaning of section 147 of the Act. The ld. AR vehemently contended that there was no satisfaction recorded in the reasons by the AO and he merely treated the information received from ITO(inv), Unit-1, Kolkata, as gospel truth. The ld. AR further submitted that the assessee was not having any bank account with ICICI bank and had never deposited any cash in the said bank account amounting to ₹3.64 crores maintained with ICICI bank as noted by the ld. AO in the reasons recorded. Moreover, the ld. AO has not given any description of transactions / dates of transactions and with whom these transactions were made and therefore, the reasons recorded were vague, scanty and ambiguous. Therefore, the reopening of assessment based upon the said reasons may kindly be quashed. The ld. AR argued that the re-opening of assessment based on the ambiguous and scanty reasons is invalid and nullity. In defense Page | 5 ITA No.972/KOL/2024 Regis Industries Limited; A.Y. 2009-10 of his arguments the ld. counsel relied on the decision of Hon’ble Delhi High Court in the case of CIT vs. Insecticides (India) Ltd. (2013) 38 taxmann.com 403 (Delhi). 07. So far as the borrowed satisfaction is concerned the ld AR argued that the AO has not applied his mind to the information received and extracted the same as received taking the same to be gospel truth without any independent application of mind . The ld AR argued that the information received is just a starting point and thereafter the AO has to apply his mind to the same and find as to how the assessee has escaped the income based on the said information. The ld Counsel submitted that the AO has just noted the information received and then noted that the income has escaped to that extent. The ld AR contended that even the correct name of the bank was not known to the AO while recording the reasons and he mentioned ICICI Bank as stated by the ITO Inv Unit -1 in the letter to the AO. The ld. AR in defense of his arguments relied on the a series of decisions namely Commissioner of Income-tax vs. SFIL Stock Broking Ltd.[2010] 325 ITR 285 (Delhi) vide order dated 27-04-2010, Signature Hotels (P.) Ltd. vs. Income-tax Officer [2011] 338 ITR 51 (Delhi)[21-07-2011]. Assistant Commissioner of Income-tax, Circle, Khanna vs. Kisco Casting (P.) Ltd. [2013] 34 taxmann.com 37 (Chandigarh - Trib.)/[2014] 147 ITD 269 (Chandigarh - Trib.)/[2013] 152 TTJ 629 (Chandigarh - Trib.)[22-06-2012].The ld AR finally prayed that the re- opening of assessment by the AO is invalid and may kindly be quashed. The ld AR further submitted that reopening on the basis of such defective and wrong reasons can not be made and is liable to be quashed. In defense of argument the ld. A.R relied on the series of Page | 6 ITA No.972/KOL/2024 Regis Industries Limited; A.Y. 2009-10 decisions of Hon’ble Delhi High Court in the case of Dr Ajit Gupta vs. ACIT in 383 ITR 361 (Del-HC). The Ld. A.R further stated that the reasons recorded have to be read as there are recorded and no substitution and addition or deletion are allowed at the latest stage . The Ld. A.R therefore stated that since the AO has recorded and mentioned the wrong facts that the assessee has deposited cash into ICICI Bank which is patently wrong as the assessee has not deposited any cash into ICICI bank. The Ld. A.R therefore submitted that even on this count the reopening of assessment has to be quashed. In defense of argument the Ld. A.R relied on the decision of Bombay High Court in the case of Hindustan Lever Ltd. vs. R. B. Wadkar, ACIT in [2004] 268 ITR 332 (Bom). 08. The ld. AR also argued that the approval of Pr. CIT for issuing notice u/s 148 of the Act was conveyed and communicated to the ITO vide letter No. PCIT/Kol-3/DCIT,Hqrs-3/Kol dated 29.03.2016 , whereas the notice u/s 148 of the Act was issued on 28.3.2016 by the AO. The ld. AR argued that though in the column no. 12 where the Pr. CIT accorded approval by stating that “considering the reasons recorded I am satisfied that it is a fit case for issue of notice u/s 148 of the Act” and stated the date of granting approval as 28.03.016 but the same cannot be treated as a valid approval when the letter of approval was dispatched to the ITO having jurisdiction on 29.3.2016 and acknowledged by the ITO on 29.3.2016. The ld. AR argued that Pr. CIT has granted approval in a mechanical manner and without application of mind and conveyed the same to the AO on 29.3.2016 whereas the AO issued the notice even before receiving the approval of the Pr CIT and therefore the notice issued is invalid and so is the re-opening and consequent order passed by the AO. In order to buttress his arguments, the ld. AR relied on the decision of Hon'ble Page | 7 ITA No.972/KOL/2024 Regis Industries Limited; A.Y. 2009-10 Delhi High Courtin case of Capital Broadways Pvt. Ltd. Vs. ITO in WP(C) 4303/ 2017 dated 03.10.2024, wherein the Hon'ble court has decided the similar issue by holding that mere mechanical manner of approval is not valid and the reopening made based upon that said approval is bad in law. 09. The ld. DR on the other hand relied on the orders of the authorities below submitting that the information received from the ITO (Inv.), Unit-1, Kolkata, was very clear and certain that assessee made huge transactions in ICICI bank in cash and therefore the case of the assessee was rightly reopened. The Ld. DR submitted that it is necessary that exact information has to be recorded in reasons to believe as it is just a starting point and actual transactions have to be dug out and ascertained during the course of reassessment proceedings. The ld. DR therefore prayed that the legal issue raised by the assessee may kindly be dismissed. 010. After perusal of the above reasons recorded, we note that the ld. AO noted in the reasons that on the basis of credible information received wherein it is reported that assessee has received Rs. 3,64 Cr after deposit of cash at source either in individual current account or proprietorship account maintained with ICICI Bank. Thereafter in second para the AO stated that it was further reported indicated pattern that aforesaid company was sold out or transferred to the beneficiaries and in the process the management/directors of the company had also been changed and investments in quoted and unquoted shares were sold against funds received by the assessee by depositing cash and thereafter in 3rd para stated that considering the above the income of the assessee escaped assessment. For the sake of ready reference the reasons recorded are extracted below: Page | 8 ITA No.972/KOL/2024 Regis Industries Limited; A.Y. 2009-10 “It isas been reported that during the course of verification of STR No.1000015473. The above named assessee had received funds of Rs 3.64 Crore approx after deposit of cash at source either in individual current account or proprietorship account maintained with ICICI Bank Ltd. It has further been reported that the transaction pattern indicates that the aforesaid company was sold out or transferred to the beneficiaries and in process directors management of the company had also been changed and the investment made in equity of private limited company or unquoted companies have been sold against finds received by the aforesaid company by depositing cash at source in individual or proprietorship account. Considering the above facts there is a reason to believe that Rs.3,64,00,000 was unexplained cash deposit in ICICI Bank of the assessee company Hence Rs. 3,64,00,000 had escaped assessment within the meaning of Sec. 147 of the Act.“ 011. However the facts of the assessee are contrary to what has been mentioned above reasons recorded. As a matter of fact the assessee was not having any bank account in ICICI Bank. We also note that there are no details of the money received , date when the transactions were entered into and with whom the transactions were entered into. We observe that the reasons recorded by the ld. AO is scanty, vague and unambiguous. The ld. AO has just reopened the case of the assessee based on the information received without any independent application of mind. We note that there is no mention of details of transactions, mode of payment, amount received by the assessee and also the details from whom the money was received by the assessee. In our opinion, the reopening of assessment cannot be allowed on the basis of such vague reasons, where the ld. AO has not done anything as there was gross non-application of mind by the ld. Assessing Officer. Under these circumstances, we are not in a position to sustain the reopening of assessment. The case of the assessee is squarely covered by the decision of Hon’ble Delhi High court in the CIT vs. Insecticides (India) Ltd. (supra), wherein the Hon'ble High Court has held that the reopening of assessment cannot be allowed on the basis of sanctity, vague reasons, wherein the ld. AO has not Page | 9 ITA No.972/KOL/2024 Regis Industries Limited; A.Y. 2009-10 mentioned in the reasons recorded the details of transactions and also the details of persons / entity from whom the money was received by the assessee. 012. A perusal of the above stated reasons reveals that the reopening was made after the AO received information from the ITO(Inv.), Unit-1 Kolkata vide letter dated 16.3.2016. In the said letter referred to the verification of STR No. 1000015473 in which it was found that the assessee received money to the tune of Rs. 3.64 Cr after deposit of cash in the individual current account or proprietorship account with ICICI Bank. Similar in the second para also the AO referred to the said information and then in third para formed the opinion. In our opinion there is no satisfaction recorded by the AO for formation of belief and the AO has done only reproduction of the information received and concluded on that basis. We note from the above that the AO has not applied his independent mind to the information received from ITO (Inv.), Kolkata. We observe that the information received was extracted in the reasons recorded as they were received even without verifying the same whether those were correct or not and the assessment was reopened u/s 147 of the Act. We also observe that there was total non-application of mind by the AO to the information received and he has only acted on the basis of borrowed satisfaction to reopen the assessment which is not permissible under the Act. In our opinion, the AO has to exercise powers as conferred upon him by section 147 r.w.s. 148 of the Act with great care and caution as by exercising the reassessment jurisdiction u/s. 147, the AO unsettles the already completed assessment putting the assessee to a huge inconvenience and harassment. In the present case, the AO has incorrectly reopened the assessment by not even verifying the facts that there was no such bank account of the assessee with ICICI Bank. Page | 10 ITA No.972/KOL/2024 Regis Industries Limited; A.Y. 2009-10 Therefore, considering these facts and circumstances, the reopening of assessment is void ab initio and invalid in the eyes of law on the ground of non-application or independent application of mind to the information received from the wing as well as on barrowed satisfaction. The case of the assessee finds support from the decision in the case PCIT Vs Meenakshi Overseas Pvt Ltd (2017) 82 taxmann.com 300 (Del). In the said decision, Hon'ble Delhi High Court has held that where the reasons to believe contain not the reasons but the conclusions of the AO one after the other and there was no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The Hon'ble High Court has held that the conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a borrowed satisfaction. Besides the case of the assessee is squarely covered by the decisions of CIT vs. SFIL Stock Broking Ltd. in [2010] 325 ITR 285 (Del) ,GRD Commodities Ltd Vs PCIT (2023) 149 taxmann.com 223(Cal), PCIT Vs Shodiman Investment Pvt Ltd (2018) 93 taxmann.com 153 (Bom) and Sarthak Securities Co Pvt Ltd. Vs ITO (2010) 329ITR 110(Del). 013. Even the reopening on the basis of such defective and wrong reasons is invalid and nullity. The case of the assessee find support from the decision of Hon’ble Delhi High Court in the case of DrAjit Gupta vs. ACIT(supra). Secondly in our opinion, the reason have to be read as were recorded by the AO and no substitution or addition or deletion are allowed at a later stage in the reasons as the AO by reopening the assessment is unsettling the already settled assessment of the assessee. In our opinion the AO is supposed to exercise utmost care and caution in the matter of exercising the jurisdiction us u/s 147 of the Act. We are fortified in our conclusion by the decision of Hon’ble Page | 11 ITA No.972/KOL/2024 Regis Industries Limited; A.Y. 2009-10 Bombay High Court in the case of Hindusthan Lever Ltd. (supra). The relevant para is extracted as below: “20. The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced.” 014. Considering the facts of the case and ratio laid down of above decisions, we are inclined to quash the reopening of assessment as well as consequent order passed u/s 147 of the Act as invalid and Page | 12 ITA No.972/KOL/2024 Regis Industries Limited; A.Y. 2009-10 nullity. Accordingly the appeal of the assessee is allowed on legal grounds. 015. Even on merit the case of the assessee is strong. The amounts have been received against sale of investments that were acquired in earlier year and duly disclosed in books of accounts and the returns of income. We note that the assessee in support of sale submitted copies of invoices, ledger of parties, bank statement highlighting receipt, names, addresses and PANs of the purchasers and their bank statements. There were no immediate cash deposits into their account. No defects have been found in the evidences adduced by the assessee. As such the assessee duly discharged its onus to prove the genuineness of the transactions. Moreover since the amount has been received against sale of investments, the purchase of which has been accepted and therefore , the amount received against sales cannot be doubted.The amount received against sale of investments have further been verified by the Ld. AO in course of remand proceedings wherein 25 out of 29 parties responded to the notices issued u/s133(6) and furnished necessary details and documents and there is no adverse finding by the Ld. AO.In remand proceedings, the bank deposits aggregating Rs. 4,86,82,949 assessed as unexplained money were duly explained with supporting documents including confirmations, Ledger Account, bank Statement, Certificate from Statutory Auditor certifying the cheques in hand as on 31.03.2009 and there is no adverse finding by the Ld. AO.The addition of Rs. 42,05,909/- on account of Unexplained cash in hand was for the reason that the Ld. AO missed to consider the cash withdrawals aggregating Rs. 48,80,000/- from IDBI bank. Furthermore, a cash flow statement duly certified by a Chartered Accountant was also filed in remand proceedings, certifying that the assessee had made cash withdrawal Page | 13 ITA No.972/KOL/2024 Regis Industries Limited; A.Y. 2009-10 from account at IDBI bank and also reconciled the cash in hand as on 31.03.2009. No adverse remarks have been made by Ld. AO. Considering these facts, we are of the considered opinion that the even the addition on merit has been wrongly sustained by the ld CIT(A). 016. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 07.05.2025. Sd/- Sd/- (SONJOY SARMA) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 07.05.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata "