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Pr. Commissioner Of Income Tax-06 Vs. M/s N.C Cables Ltd.
January, 20th 2017

%                                 Judgement delivered on:11.01.2017

+                               ITA 335/2015

      PR.COMMISIONER OF INCOME TAX-6              ..... Appellant
                   Through: Mr. Dileep Shivpuri, Mr. Sanjay
                            Kumar and Mr. Vikrant A.
                            Maheshwari, Advocates.

      M/S N.C CABLES LTD.                                  ..... Respondent
                    Through:           Dr. Rakesh Gupta, Mr. Somil
                                       Agarwal, Mr. Rohit Kumar Gupta and
                                       Ms. Monika Ghai, Advocates.



1.    The following questions of law were framed in this case:-
     "(a) Did the Tribunal fall into error in holding that the
     Commissioner of Income Tax (CIT) did not in fact record
     satisfaction under Section 151 of the Income Tax Act, 1961 for
     issuing notice under Section 147, in the circumstances of the

     (b) Is the impugned order of the Tribunal justified in so far as it
     directs the deletion of sums brought to tax by the Assessing
     Officer under Section 68?"

2.    The assessee had in its return for the Assessment Year (AY) 2001-02
claimed that sum of `1,00,00,000/- (One Crore) was received towards share

ITA 335/2015                                                   Page 1 of 8
application amounts and a further sum of `35,00,000/- (Thirty Five Lakhs)
was credited to it as an advance towards loan. The original assessment was
completed under Section 143(3) of the Income Tax Act, 1961 (hereinafter to
be referred as `the Act'). However, pursuant to the reassessment notice,
issued on 25.03.2008, which was dropped due to technical reasons, and later
notice was issued on 21.04.2008, assessments were taken up afresh. After
considering the submissions of the assessee and the documents produced in
the reassessment proceedings, the Assessment Officer (AO) added back a
sum of `1,35,00,000/- (One Crore Thirty Five Lakhs). The Commissioner
of Income Tax (Appeals) [CIT (A)] held against the assessee on the question
of legality of the reassessment notice but allowed the assessee's appeal on
merits holding that the AO did not conduct the appropriate enquiry to
conclude that share inclusion and the advances received were from bogus
entities. The Income Tax Appellate Tribunal (ITAT) allowed the assessee's
appeal on merits.
3.    The Revenue appealed against the appellate order on the merits; the
assessee's cross appeal was on the question of correctness of reopening of
the assessment.
4.    The ITAT upheld the assessee's cross-objections and dismissed the
Revenue's appeal holding that there was no proper application of mind by
the concerned sanctioning authority under Section 151 of the Act as a pre-
condition for issuing notice under Sections 147/148 of the Act. The ITAT
also concluded that in the given facts of the case, the AO had not conducted
adequate and proper inquiry into the materials, while invoking Section 68 of
the Act to add the amounts in issue.
5.    Counsel for the Revenue urges that the CIT (A) and the Tribunal fell

ITA 335/2015                                                 Page 2 of 8
into material error of law in holding that there was no proper application of
mind by the competent authority under Section 151 of the Act.
6.    The learned counsel relied upon the actual noting which approved the
reasons put up to the CIT (A) under Section 151 and submitted that the
Commissioner had applied its mind to all the surrounding circumstances
while authorizing the reopening and in the circumstances, the adverse
findings recorded by the ITAT cannot be sustained. Learned counsel next
submitted that on the merits, the CIT (A) and the ITAT's findings cannot be
sustained and are unreasonable in the circumstances. It was urged that when
notices were issued under Section 131 to the alleged investors/creditors, it
was found that substantial majority of them were missing or not found at the
addresses given. Furthermore, the bank statements furnished by the assessee
of such individuals or entities were supposed to have invested in the shares
of the assessee, a private company, who had infusion of funds before the
disbursement. The assessee despite opportunity failed to substantiate these
infusions and also failed to show that the share investors or creditors were
genuine parties and that the transactions were genuine. It was submitted that
the judgment in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd.
216 CTR 195(SC) clearly envisages that three tests are to be satisfied. In the
present case, the genuineness of the transactions and the creditworthiness of
the share applicants and the creditors were not demonstrated.          In the
circumstances, the assessee could not be said to have discharged the burden
placed upon it in the first instance.
7.    Counsel for the assessee argued that the findings of the ITAT on the
question of reopening are not perverse and are according to law. He relied
upon the noting to say that the CIT (A) merely approved the note put up by

ITA 335/2015                                                  Page 3 of 8
the ACIT which cannot be said to have satisfied the pre-condition of
satisfaction contemplated under Section 151 of the Act.       As to the merits,
the learned counsel urged that details of each relevant party i.e. confirmation
of the amounts paid towards share application or loan, acknowledgment of
the ITRs filed by the concerned party/creditor, copies of bank statements
and company details were furnished.          The mere fact that the AO's
representative or inspector could not find the premises of these investors
after seven years did not mean that the transactions were not genuine.
Learned counsel submitted that the AO could well have conducted an
appropriate inquiry into the income tax records to discern whether the
authorities were genuine and had sufficient credit to invest or advance the
amounts. In the absence of such enquiry, the onus could not have shifted
back to the assessee in terms of the judgment in Lovely Exports' case
(supra) since it had clearly shown the identities of the investors/creditors,
their bank accounts and the creditworthiness of such party.
8.    As far as the addition is concerned, the assessee had furnished large
amounts of materials in the form of documents to evidence the genuineness
of the identity and the transactions as well as the creditworthiness of the
parties. The AO apparently conducted the perfunctory inquiry by deputing
an inspector to the premises. As is contended by the assessee, the absence
of these parties, after seven or eight years, ipso facto could not have led the
AO to conclude that the parties were fictitious or non-existent. The assessee
had provided details of the Permanent Account Numbers (PAN) and Income
Tax Returns (ITR) for the relevant years. Nothing prevented the AO from
inquiring into these details in support of its suspicion that the transactions
were not genuine. Undoubtedly, the AO had certain bank statements which

ITA 335/2015                                                    Page 4 of 8
disclosed facially that the amounts were infused in cash at the relevant time
before the shares were subscribed to or the credits were given. Those
suspicious circumstances at the same time could not have been the
conclusive factor in this case.
9.     Since the investigation wing had levelled several allegations, the AO
should, in our opinion, have carried out a more intensive investigation into
the income tax records to actually discern the volume of trade or commerce
of the share applicants/creditors and their inability, if any, to invest or
advance the amounts in issue. That failure cannot translate into the amount
by the assessee to provide basic information which is undoubtedly not done.
In these circumstances, this Court is of the opinion that there is no infirmity
in the concurrent findings of the CIT (A) and the ITAT on this issue.
10.    As far as the first issue with respect to the approval granted to reopen
the assessment under Section 147/148 of the Act is concerned, the relevant
noting is as follows:-
      "Reasons for issuing notice u/s 148 of the Act in the case of M/s
      N. C. Cables Limited, for the A. Y. 2001-02-reg.

      Information has been received from the Investigation Wing of the
      Income Tax Department that the above named assessee is a
      beneficiary of accommodation entries received from certain
      established entry operators identified by the Wing during the
      period laundering for the beneficiaries and on the basis of
      investigation carried out and evidences collected, a report has
      been forwarded. I have perused the information contained in the
      report and the evidences gathered. The report provides details of
      the modus oparandi of the 'money laundering scam' and explain
      how the unaccounted money of the beneficiaries are ploughed
      back in its books of account in the form of bogus share
      capital/capital gains etc. after routing the same through the bank
      account (s) of the entry operators. Entry operators were

ITA 335/2015                                                   Page 5 of 8
     identified after thorough investigation on the basis of definitive
     analysis of their identity, creditworthiness and the source of the
     money ultimately received by the beneficiaries. These entry
     operators are found to be mostly absconding after the unearthinq
     of the 'Money Laundering Scam' leaving the said money at the
     disposal of the beneficiaries without any associated cost or
     liability. In the instant case, the assessee is found to be the
     beneficiary of accommodation entry from such entry operators as
     per the following specific details of transaction:-

Entry          Beneficiary's   Amount-   Instrument       Entry         Account no.
Operator       bank            Rs.       No. by which     giving bank   From which
                                         entry    taken                 entry was
                                         and date                       given
Mahesh Garg    -               800480    30.11.2000       SBP-DG        4507
Performance    -               700420    13.11.2000       SBP-DG        4281
Trading &
Chintpurni     -               900540    22.11.2000       SBP-DG        50058
Subhash        -               500300    23.11.2000       SBP-DG        4544
Kuldeep        -               500500    21546            Innovative    239
Textiles P.                              24.3.2001        Wazipur
Sweta Stone    -               500500    23510            -do-          1200259-
P. Ltd.                                  24.3.2001                      C.A.
Division       -               500500    33612            -do-          225
Trading P.                               24.3.2001

     During the course of the proceedings u/s 148 for the same
     assessment year, which Was dropped on the technical ground
     that proper sanction was not obtained, it was noticed that there
     are other receipts also from the identified entry operators.
     Information about those entries was not available in the data
     received from the Investigation Wing.

     Nevertheless they also fall within the ambit of section 68 of the
     Act. The assessee has received unexplained sums from the entry

ITA 335/2015                                                       Page 6 of 8
      operators as per the above details as per information available
      with the undersigned. As explained above the identity,
      creditworthiness and genuineness of transactions with the
      persons found to be entry operators cannot be established. I
      therefore have reasons to believe that on account of failure on
      the part of the assessee to disclose truly and fully all material
      facts necessary for assessment for above AY the income
      chargeable to tax to the extent of accommodation entry
      mentioned above, has escaped assessment within the meaning of
      S.147 of the Act.

      Since four years has been expired from the end of the relevant
      year, and assessment u/s 143(3) of the Act was made in the case
      of the assessee for the said A ~ the reasons recorded above for
      the purpose of reopening of assessment is put up for kind
      satisfaction of the CIT, Delhi t1, New Delhi in
      terms of the Proviso to Section 151 of the Act.
                                                        Sd/- (ITO) Ward 13(1).
        The ACIT, Range 13, New Delhi
        For kind approval of CIT-V, New Delhi
        CIT-V, Delhi:
        "Approved"                                    Sd/-"

11.    Section 151 of the Act clearly stipulates that the CIT (A), who is the
competent authority to authorize the reassessment notice, has to apply his
mind and form an opinion.          The mere appending of the expression
`approved' says nothing. It is not as if the CIT (A) has to record elaborate
reasons for agreeing with the noting put up. At the same time, satisfaction
has to be recorded of the given case which can be reflected in the briefest
possible manner. In the present case, the exercise appears to have been
ritualistic and formal rather than meaningful, which is the rationale for the
safeguard of an approval by a higher ranking officer. For these reasons, the
Court is satisfied that the findings by the ITAT cannot be disturbed.

ITA 335/2015                                                   Page 7 of 8
12.   The substantial questions of law framed are answered in favour of the
assessee and against the Revenue. The appeal is dismissed.

                                                S. RAVINDRA BHAT, J.

                                                     NAJMI WAZIRI, J.
JANUARY 11, 2017

ITA 335/2015                                                 Page 8 of 8
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