V.S. CAPITAL SERVICES PVT. LTD. vs.INCOME TAX OFFICER
DELHI TRIBUNAL
H. S. SIDHU, JM & L.P. SAHU, AM.
ITA No. 6162/Del./2012
Mar 3, 2016
(2016) 46 cch 0224 DelTrib
Legislation Referred to
Section 68, 143(3)
Case pertains to
Asst. Year 2002-03
Decision in favour of:
Assessee
Reassessment—Income Escaping
assessment—Validity—Reason to believe—Assessee filed return of income declaring
income of Rs.3,811—Return was processed u/s 143(1)—Information had been
received from DIT(Investigation) that assessee company had received accommodation
entries from various companies/parties to tune of Rs. 2,00,000—Those entries
were in nature of accommodation entries and in reality it was assessee’s own
unaccounted money which had been shown in books of accounts as receipt from
parties/companies—Accordingly, case was reopened u/s 147 after recording
reasons—Notice u/s 148 was issued and was served upon assessee—In response to
said notice, assessee company stated that “return filed by assessee was
considered as return filed in response to notice u/s 148—During assessment
proceedings AO noticed that accommodation entries were of Rs. 11,10,000/- and
not of Rs.2,00,000/- as mentioned in reasons recorded—AO further noticed that
assessee had raised share application money/share capital from various companies/parties—Assessee
companies furnished required details in respect of share application/share
capital raised during year— AO held that in terms of section 68 burden was on
assessee to offer satisfactory explanation about nature and source of amount
found credited in books of assessee and it further held that it was clear that
mere furnishing of particulars was not enough—AO had reason to believe that
income of assessee had escaped assessment hence he completed assessment u/s.
143(3)/148—CIT(A) dismissed appeal of assesse filed against validity of
reassessment Order passed by AO—Held, after going through reasons recorded by
AO and finding given by CIT(A), it viewed that AO had not applied his mind so
as to come to independent conclusion that he had reason to believe that income
had escaped during year—In Tribunals view reasons were vague and not based on
any tangible material as well as same were not acceptable in eyes of law—AO had
mechanically issued notice u/s 148 on basis of information allegedly received
by him from Directorate of Income Tax (Investigation)—In CIT vs. G&G Pharma
India Ltd. it was held that once date on which so called accommodation
entries were provided was known, it would not have been difficult for AO, if he
had in fact undertaken exercise, to make reference to manner in which those
very entries were provided in accounts of Assessee, which must have been
tendered along with return, which was filed on 14th November 2004 and was
processed u/s 143(3)—Without forming prima facie opinion, on basis of such
material, it was not possible for AO to have simply concluded that assessee
company had introduced its own unaccounted money in its bank by way of
accommodation entries"—Basic requirement that AO must apply his mind to
materials in order to have reasons to believe that income of Assessee escaped
assessment and same was missing in present case—While CIT(A) might have
proceeded on basis that reopening of assessment was valid, this did not satisfy
requirement of law that prior to reopening of assessment, AO applied his mind
to materials, to conclude that he had reason to believe that income of Assessee
had escaped assessment— Unless basic jurisdictional requirement was satisfied
post mortem exercise of analysing materials produced subsequent to reopening
would not rescue inherently defective reopening order from
invalidity—Assessee’s Appeal allowed
Held
After going through the
reasons recorded by the AO and the finding given by the Ld. CIT(A) in para 4.2
to 4.4 of pages 5 to 7 of the impugned order, the court was of the view that AO
has not applied his mind so as to come to an independent conclusion that he has
reason to believe that income has escaped during the year. The court observed
that 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 Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the
facts and circumstances of the present case and the case law applicable in the
case of the assessee, ITAT are of the 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.
(Para8.2)
Pr. CIT vs. G&G Pharma
India Ltd. in ITA No. 545/2015 dated 8.10.2015 of the Delhi High Court wherein
the Hon’ble Court has adjudicated the issue as Once the date on which the
so called accommodation entries were provided is known, it would not have been
difficult for the AO, if he had in fact 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 tendered along with the return,
which was filed on 14th November 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 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 the
considered view of the Court, in light of the law explained with sufficient
clarity by the Supreme Court in the decisions discussed hereinbefore, the basic
requirement that the AO must apply his mind to the materials in order to have
reasons to believe that the income of the Assessee escaped assessment is
missing in the present case.
(Para8.2.12)
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 the
assessment, the AO has to, applying his mind to the materials, conclude that he
has reason to believe that income of the Assessee has escaped assessment.
Unless that basic jurisdictional requirement is satisfied a post mortem
exercise of analysing materials produced subsequent to the reopening will not
rescue an inherently defective reopening order from invalidity.
(Para8.2.13)
Conclusion
When the reasons for reassessment are vague and are not based on
any tangible material as well as are not acceptable in the eyes of law than the
requirement required for reopening of assessment not justified.
In favour of
Assessee
Cases Referred to
Pr. CIT vs. G&G Pharma India Ltd. in ITA No. 545/2015 dated 8.10.2015
Counsel appeared:
Kapil Goel, Adv. for the Assessee.: V.R. Sonbhadra, Sr. DR for the
Department
H. S. SIDHU, JM.
1. The Assessee has filed
the Appeal against the impugned Order dated 29.10.2012 passed by the Ld.
CIT(A)-19, New Delhi relevant to assessment year 2002-03.
2. The grounds raised by
the Assessee reads as under:-
“Validity
of Reopening u/s. 148
1. That
on the facts and in the circumstances of the case and in law, Ld. CIT(A) erred
in upholding the reopening action of AO which stands vitiated inter alia for
following reasons:-
a. Total
lack of tangible material/ reasonable cause and jurisdiction.
b.
Absence of nexus (much less live nexus) between alleged information (unknown
whether exists on file or not) and tentative inference drawn;
c. Non
Application of mind much less independent application of mind
d. Total
lack of clarity on nature of transaction in reasons recorded
2. That
on the facts and in the circumstances of the case and in law, learned CIT-A
erred in arbitrarily applying factually distinguishable precedents to
mechanically uphold the orchestrated additions made by Ld AO inter alia without
appreciating that:
a.
Reasons recorded originally as supplied to assessee mentioned share application
transaction for Rs 200,000 whereas later on addition is made by Ld AO is for
Rs. 11,10,000 (unknown how scope of reasons extended as, it is settled reasons
cannot be recorded in piecemeal manner and is not empty ritual);
b. On
enquiry u/s 133(6) share applicants/holders have adequately responded to Ld AO
during assessment stage thereby proving their existence beyond anvil of doubt
c. No meaningful
enquiry by Ld AO from share applicants to impeach the unassailable evidence
filed by appellant assessee;
d. Whole
addition is made on directions and dictates of investigation wing treating its
recommendation as gospel truth;
e.
Adverse inference is automatically drawn solely and merely because of non
production of directors of share applicants companies
3. 'That
on the facts and in the circumstances of the case and in law, learned CIT-A
erred in sustaining the addition made by Ld AO amounting to Rs. 11,10,000 &
Rs 27,750 dehors the material available on record based on peroerse findings
and conclusions, .
That the
appellant craves leave to add, to, amend, modify, rescind, supplement or alter
any of the grounds stated herein above, either before or at the time of hearing
of this appeal.
3. The brief facts of the
case are that the assessee filed return of income on 31.10.2002 declaring
income of Rs.3,811/-. The return was processed u/s 143(1) of the Income-tax
Act, 1961 on 27.1.2003. An information has been received from the
DIT(Investigation), New Delhi that the assessee company had received
accommodation entries from various companies/ parties to the tune of Rs.
2,00,000/-. These entries are in the nature of accommodation entries and in the
reality it is the assessee’s own unaccounted money which has been shown in the
books of accounts as a receipt from parties/ companies. Accordingly, the case
was reopened u/s. 147 of the Income Tax Act after recording the reasons. A
notice u/s. 148 of the I.T. Act was issued on 28.8.2006 and was served upon the
assessee. In response to the said notice the assessee company vide its letters
dated 8.8.2007 stated that “return filed by the assessee u/s. 139 is considered
as return filed in response to notice u/s 148. Statutory notice u/s. 143(2) was
issued and served and in response thereto assessee’s authorized representative attended
the assessment proceedings and during the assessment proceedings AO noticed
that the accommodation entries are of Rs. 11,10,000/- and not of Rs.2,00,000/-
as mentioned in the reasons recorded. He further noticed that assessee has
raised share application money / share capital from various companies/ parties.
The assessee companies furnished the required details in respect of share
application / share capital raised during the year. Thereafter, the AO held
that in terms of section 68 the burden is on the assessee to offer a
satisfactory explanation about the nature and source of amount found credited
in the books of the assessee and it was further held that it is clear that mere
furnishing of particulars is not enough. AO observed that since the assessee
has failed to do so in submitting the information called for and has also
failed to discharge his onus to produce the parties/ persons, a sum of Rs.
11,10,000/- in respect of share application money/ share capital, and he added
the same to the income of the assessee u/s. 68 of the Act and also added Rs.
27,750/- being commission and completed the assessment at Rs. 11,41,560/- u/s.
143(3)/148 of the Act vide order dated 26.12.2007.
4. Against the Order of the
Ld. AO, assessee appealed before the Ld. CIT(A), challenging the validity of
reassessment as well as the additions in dispute who vide impugned order dated
29.10.2012 has dismissed the appeal of the assesseee.
5. Aggrieved with the
aforesaid order of the Ld. CIT(A), Assessee is in Appeal before the Tribunal.
6. At the time of hearing,
Ld. Counsel of the assessee has only argued the legal ground challenging the
validity of reopening u/s. 148 of the I.T. Act by stating that action of the
Assessing Officer is illegal, because the same is lacking tangible material /
reasonable cause and justification. The action of the Revenue Authorities is in
absence of nexus between alleged information and tentative inference; non
application of mind much less independent application of mind; total lack of
clarity on nature of transaction in reasons recorded. He further submitted that
the present case is squarely covered by the Hon’ble High Court Decision dated
8.10.2015 passed in ITA No. 545/2015 in the case of Pr. CIT-4 vs. G&G
Pharma India Ltd., wherein the Tribunal’s decision dated 9.1.2015 has been
followed. In this behalf, he filed the copy of the order dated 8.10.2015 of the
Hon’ble High Court of Delhi in Pr. CIT vs. G&G Pharma India Ltd. Therefore,
he requested that by following the decision in the case of Pr. CIT vs. G&G
Pharma India Ltd., the ground no. 1 raised by the Assessee in the present
appeal may be allowed.
7. On the contrary, Ld. DR
relied upon the order passed by the CIT(A) on issue of validity of reopening
and stated that Ld. CIT(A) has rightly upheld the action of the AO of
reopening.
8. We 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 our view, it is very much necessary to
reproduce the reasons recorded by the AO before issue of Notice to the Assessee
u/s. 148 of the I.T. Act, 1961 which is reproduced hereunder:-
“M/s V.
S. Capital Services (P) Limited
Asst.
Year -2002-03
Reason
for Reopening of the case
25.08.2006
The
Information has been received by the Directors of income tax (Inv)-I New Delhi
vide letter no DIT (Inv)-I/2006-07/AE/258 at 16/6/2006 that the above said
company have received accommodation entries as above:-
Rs.100000/-
on 31.03.2002 from M/s. Rabik Exports Limited Through Corporation Bank Paschim
Vihar A/c No.-52199.
Rs.
100000/- on 31.03.2002 from Mis. Shashi Sales & Marketing Pvt. Limited
Through Corporation Bank Paschim Vihar A/c No.-52351.
In
reality these accommodation represent the assessee own unaccounted money. The
Assessment in this case was completed u/s 143(1) on 27.01.2003. These entries
are not shown in the return of income filed on 31 October, 02. In view of the
above I have reasons of believe that the income of Rs. 200000/- has escaped
assessment for the A. Year 2002-03. Therefore the case is re- opened u/s 147 of
the Income Tax act for the assessment year 2002-2003.
Sd/-
Income
Tax Officer W-17(1) New Delhi”
8.1 For the sake of
clarity, we are also reproducing herewith the para no. 4 of the impugned order
dated 29.10.2012 at page no. 5 wherein Ld. CIT(A) has discussed the issue of
challenging the reopening of assessment u/s. 147 of the Act.
“4.1
Ground no. 2 challenges the reopening of assessment u/s 147. In the assessment
er, the AO. has stated as follows:
Originally
return of income was filed on 31.10.2002 declaring income of Rs. 3,811/-. The
return filed was processed u/s 143(1) of I. T. Act on 27.01.2003. An
information has been received from the DIT (Inv.), New Delhi that the assessee
company had received accommodation entries from various companies! parties to
the tune of Rs. 2,00,000/-. These entries is in the nature of an accommodation
entries and in the reality it is the assessee is own unaccounted money which
has been shown in the books of accounts as a receipt from parties 1 companies.
Accordingly
the case was reopened u/s 147 of the Income Tax Act after recording the
reasons.
A notice
u/s 147 of the IT Act was issued on 28.O8.2006 and was served upon the
assessee. In response to the said notice the assessee company vide its letter
dated B. B. 2007 that "return filed by the assessee u/s 139 is considered
as return filed in response to notice u/s 14B." Statutory notice u/s
143(2) was issued and served. In response to the statutory notices, Shri Rishi
Singhal, CA attended the proceedings from time to time. The case was discussed
with him.”
8.2 After going through the
reasons recorded by the AO and the finding given by the Ld. CIT(A) in para 4.2
to 4.4 of pages 5 to 7 of the impugned order, we are of the view that AO has
not applied his mind so as to come to an independent conclusion that he has
reason to believe that income has escaped during the year. In our 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 Directorate
of Income Tax (Investigation), New Delhi. Keeping in view of the facts and
circumstances of the present case and the case law applicable in the case of
the assessee, we are of the 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. Our 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 Hon’ble Court has adjudicated the issue as
under:-
“12. In
the present case, after setting out four entries, stated to have been received
by the Assessee on a single date i.e. 10th February 2003, from four entities
which were termed as accommodation entries, which information was given to him
by the Directorate of 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 whether the AO applied his mind to the
materials that he talks about particularly since he did not describe what those
materials were. Once the date on which the so called accommodation entries were
provided is known, it would not have been difficult for the AO, if he had in
fact 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 tendered along with the return, which was filed on 14th November 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 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 the considered view of the Court, in light of the law
explained with sufficient clarity by the Supreme Court in the decisions
discussed hereinbefore, the basic requirement that the AO must apply his mind
to the materials in order to have 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 CIT(A) to show how the CIT (A)
discussed the materials produced during the hearing of the appeal. The Court
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 the
assessment, the AO has to, applying his mind to the materials, conclude that he
has reason to believe that income of the Assessee has escaped assessment.
Unless that basic jurisdictional requirement is satisfied a post mortem
exercise of analysing materials produced subsequent to the reopening will not
rescue an inherently 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.”
9. In view of above, we are
of the considered view that the aforesaid issue in dispute is exactly the
similar and identical to the issue involved in the present appeal and is
squarely covered by the aforesaid decision of the Hon’ble High Court of Delhi
in the case of G&G Pharma (Supra). Hence, respectfully following the above
precedent in the case of Pr. CIT-4 vs. G&G Pharma India Ltd. (Supra) we
decide the legal issue in dispute in favor of the Assessee and against the
Revenue and accordingly quash the reassessment proceedings and allow the ground
no. 1 raised by the Assessee in its Appeal. Since we have quashed the
reassessment proceedings, as aforesaid, the other issues are not being dealt
with.
10. In the result,
Assessee’s appeal is allowed.
*****
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