IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `B' NEW DLEHI
BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER
AND
SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER
I.T.A. No.3189Del/2015
Assessment Year: 2006-07
DCIT, Circle 23(2), vs Second Realtors Pvt. Ltd.,
New Delhi. C-62, Basement,
(PAN: AAJCS6446E) South Extension, Part-I,
New Delhi
(Appellant) (Respondent)
Appellant by: Ms Ashima Neb, Sr. DR
Respondent by: Shri Manoj Gupta, CA
Shri Kundanwahi, FCA
ORDER
Date of hearing: 19.11.2018
Date of Pronouncement: 20 .11.2018
PER K. NARASIMHA CHARY, JM
Challenging the order dated 12/03/2015 in appeal No. 370/14-15
passed by the principal Commissioner of income tax (OSD) (appeals)-8,
New Delhi ("Ld. CIT(A)") Revenue preferred this appeal and on the
following grounds:-
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1. The Ld. CIT(A) has added in law and on facts in ignoring the fact
that necessary enquiries about the escapement of income were
already conducted by the investigation wing from which
information was received for initiating proceedings u/s 148 of the
IT act.
2. The Ld. CIT(A) has added in law and on facts in declaring the
notice issued u/s invalid.
3. The CIT has added in law and on facts in holding that the
assessment made by the AO under section 143(3) r.w.s. 147 as ab
initio wide and holding addition made by the ever as unjustified.
4. The appellant craves to amend, modify, alter, and are forgo any
ground(s) of appeal at any time before or during the hearing of this
appeal.
2. Brief facts of the case relevant for the disposal of this appeal are that
M/s Second Realtors private limited (assessee) is a company incorporated
to carry on the business of purchase, sale, own, develop, improve, let,
build, take on lease etc of all kinds of immovable properties, land etc. For
the assessment year 2006-07 the assessee filed return of income declaring
nil income on 31/10/2006 and the assessment was complete on section
143(3) of the Act on 25/11/2008.
3. Subsequently by way of letter dated 12/03/2013, DIT (Inv.)-II, New
Delhi informed that the search and seizure operations carried out at the
residential and business premises of Sh. SK Jain and Sh. VKJ in on 14 and
2010 resulted in the department noticing that a number of companies were
being managed from the residential as well as business addresses relating to
Sh. SK Jain and VK Jain though all the books of accounts and other
relevant papers of those companies were found from the residence of Mr
HK Jain and VK Jain itself and nothing was found at the other addresses. In
the particulars furnished by DDIT (Inv.), the name of the assessee also
found place. On a perusal of the documents/information supplied by the
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investigation wing, learned Assessing Officer formed an opinion that the
material reveals that the assessee has also been providing accommodation
entries regularly, and although the assessee company furnished various
details relating to share capital at the time of the assessment under section
143(3) of the Act, but it was not disclosed anywhere that those were
accommodation entries. Basing on the same the learned AO recorded that
he has reason to believe that income of Rs. 1,00,00,000/-which should have
been charged to tax has escaped assessment for the assessment year 2006-
07.
4. Learned AO issued notice under section 148 of the Act after
obtaining approval as required by section 151 of the Act and concluded the
reassessment by making an addition of rupees one crore to the income of
the assessee.
5. When the assessee preferred appeal, Ld. CIT(A), by way of
impugned order, held that the notice issued under section 148 of the Act is
not valid and the assessment made by the learned Assessing Officer under
section 143(3) of the Act read with section 147 of the Act is void ab initio
and consequently the addition made by the learned Assessing Officer under
section 68 of the Act was not justified. Ld. CIT(A), accordingly, deleted
the addition made under section 68 of the Act and allowed the appeal.
Hence the revenue preferred this appeal.
6. It is the argument of the Ld. DR that the Ld. CIT(A) wrongly held
that the learned Assessing Officer heavily relied upon the letter of the
investigation wing and instead of making any enquiry learned Assessing
Officer reopened the matter. According to Ld. DR the reasons recorded by
the learned Assessing Officer clearly indicate the independent application
of mind of the learned Assessing Officer to the documents/information
along with the relevant seized documents/annexures etc for reaching a
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prima facie conclusion that the assessee has taken the accommodation
entries. Vide paragraph No. 4a of the reasons recorded, learned Assessing
Officer recorded that various other seized material including A-46, A -40,
A -24 etc also clearly indicate the fact that the assessee has been providing
accommodation entries regularly. All these things would clearly show that
though the DIT(inv) suggested that the Assessing Officer "may consider
the matter and issue notice under section 148, if required", learned
Assessing Officer after perusing the documents/information supplied by the
investigation wing found the involvement of the assessee in taking and
providing the accommodation entries regularly, and inasmuch as the
assessee has not furnished the various details truthfully at the time of
original assessment under section 143 (3) of the Act, Ld. Assessing Officer
is justified in holding that there is reason to believe that income of rupees
one crore which have been charged to tax has escaped assessment for the
assessment year 2006-07.
7. It is further submitted by Ld. DR that no statements wererecorded by
the learned Assessing Officer during the assessment proceedings and the
assessee never sought the cross-examination of the Jain brothers before the
investigation wing. She further submitted that as could be seen from the
letter dated 18/10/2013 address by the assessee to the learner Assessing
Office, that learned Assessing Officer on 08/10/2013 made the order sheet
entry to the effect that the assessee company had already been provided the
letter through which the satisfaction of the CIT was conveyed.
8. Further insofar as the observations of the Ld. CIT(A) about the
availability of the documents to form the reason to believe that income
escaped for an assessment, Ld. DR submitted that the learned Assessing
Officer in unequivocal terms, vide paragraph No. 3 of the reasons for
reopening the case of the assessee, stated that the detailed information
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along with relevant disease documents/annexure etc have been supplied to
his office through letter of director of income tax (Inv.)-II, New Delhi wide
F.No DIT(Inv.) u/s 148/2013-14/196 dated 12/03/2013 and the specific
information regarding the assessee company have been flagged at "A",
perusal of which information/documents supplied by the investigation wing
reveals that the assessee had taken the accommodation entries as
enumerated therein. It was further recorded by the learned Assessing
Officer that various other seized material including A-46, A-40, A-24 etc
also clearly indicated to the fact that the assessee was providing
accommodation entries regularly. She, therefore, submitted that there was
enough material before the learned Assessing Officer to form satisfaction
that it is a fit case to reopen and issue notice under section 148 of the Act.
9. Placing reliance on the decision of the Hon'ble jurisdictional High
Court in the case of Consolidated Photo and Fininvest Ltd vs. ACIT
reported in (2006) 151 taxman 41 (Delhi), Ld. DR submitted that the action
under section 147 is permissible even if Assessing Officer gathered his
reasons to believe from very same record as it had been subject matter of
completed assessment proceedings and the principle that a mere change of
opinion and cannot be a basis for reopening completed assessments would
have no application where order of assessment does not address itself to
aspect which is basis for reopening of assessment. Basing on the above
factual matrix more particularly to an annexure A-52 incorporated at page
No. 5 of the assessment order, Ld. DR submitted that certain factual
incorrectness has crept into the impugned order and, therefore, the
impugned order is liable to be set-aside and the order of the learned
Assessing Officer has to be restored.
10. Per contra, it is the argument of the learned Authorised
Representative that the Ld. CIT(A) is justified in his observations that
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without making any further enquiries and without having the documents in
his custody learned Assessing Officer issued notice under section 148 of
the Act and this fact is evident from the letter dated 10/10/2013 written by
the learned Assessing Officer subsequent to the issuance of the notice
under section 148 of the Act requesting for certain documents like photo
copy of annexure A-52 page 38, copies of bank statement of the relevant
period from which accommodation entries/checks/PO have been issued to
the persons, and copies of statement of Sh. SK Jain, Sh. PK Jain etc
wherein it was stated that certain persons have taken accommodation
entries from them. It is, therefore, clear that as on the date of issuance of
notice under section 148 of the Act, learned Assessing Officer is not in
possession of these documents and that is the reason why by letter dated
10/10/2013 the learned Assessing Officer requested for these documents.
11. It is contended that when the assessment was sought to be reopened
after 4 years from the end of the relevant assessment year, it is incumbent
upon the learned Assessing Officer to say in the order that any income
chargeable to tax has escaped assessment for such assessment year by
reason of the failure on the part of the assessee to disclose fully and truly
all material facts necessary for his assessment, for that assessment year;
and that for want of this requirement also the reopening is bad. He further
submitted that though he requested for the copy of the proforma for
recording reasons and obtaining approval of the CIT, the same was
rejected, thereby depriving the assessee of an opportunity to challenge the
correctness of the approval obtained by the learned Assessing Officer.
12. Ld. AR placing reliance on the decisions reported in PCIT vs. G & G
Pharma India Ltd (ITA 545/2015 on the file of the Hon'ble Delhi High
Court) and PCIT vs. Meenakshi Overseas Private Limited (ITA 692/2016
on the file of the Hon'ble Delhi High Court) for the principle that the
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reasons recorded have to be based on some tangible material and that
should be evident from the reading the reasons, it cannot be supplied
subsequently either during the proceedings and objections to the reopening
are considered or even during the assessment proceedings that follow and
this is the bare minimum mandatory requirement of the 1st part of section
147 (1) of the Act.
13. Further reliance is placedon the decisions reported in Titanor
Components Ltd vs. ACIT and others (writ petition No. 71 of 2005 on the
file of the Hon'ble Bombay at Goa) and Subh Infrastructure Ltd vs. ACIT
(WP (C) 1357/2016 on the file of the Hon'ble Delhi High Court) for the
principle that the powers under section 147 of the Act have to be exercised
after a period of 4 years only if there is a failure to disclose fully and truly
all material facts and information by the assessee. In support of his
contention that in the approving authority under section 151 of the Act
records that "yes, I am satisfied", that would not be sufficient compliance
with the requirement of section 151 of the act, Ld. AR placed reliance on
the decision of a coordinate bench of this Tribunal in Pioneer town
planners private limited vs. DCIT (ITA No. 132/del/2018, dated
06/08/2018).
14. We have gone through the record including the impugned order as
well as the assessment order in the light of the submissions made on either
side. Learned Assessing Officer sought to reopen the concluded assessment
basing on the documents/information supplied by the investigation wing.
Ld. CIT(A) held that such reopening is bad for the reason that the
Assessing Officer heavily relied upon the letter of the investigation wing
and the Assessing Officer did not make the enquiries which he was
supposed to make to form the belief and to record the reasons that income
was escaped assessment. Ld. CIT(A) further held that certain documents
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were not in the possession of the Assessing Officer when the notice under
section 148 was issued and it is the reason why the learner Assessing
Officer had to request further documents by his letter dated 10/10/2013.
Further Ld. CIT(A) recorded that regarding the satisfaction obtained by the
learned Assessing Officer under section 151 (1) of the Act that the learner
Assessing Officer has not forwarded the relevant case record. By noticing
that in the assessment order it was mentioned that the approval from the
Commissioner of income tax was obtained, CIT did not make any adverse
comments, on this point.
15. Now the questions that arise for our adjudication are whether the
Assessing Officer merely relied upon the information furnished by the
investigation wing, without making the enquiries which is supposed to do
and because of such "borrowed satisfaction" the notice under section 148
of the Act is bad under law?, and whether the learned Assessing Officer
recorded the reasons without having the possession of the requisite
documents and he got possession of such documents only subsequently?
16. When we perused the assessment order, we found that Ld. Assessing
Officer extracted the letter dated 12/03/2013 from the investigation wing
and also the reasons recorded by him. Letter dated 12/03/2013 reads that
while furnishing the details of the accommodation entries relatable to Jain
brothers, learned AO was requested to consider the matter and to issue the
notice/s 148 of the Act, if required. We do not find any direction given by
the Investigation Wing to the learned AO. The Investigation Wing seems
to have furnished certain documents, more particularly, Annexure "A-52 P-
38"which the learned AO incorporated at page 5 of his order. When we
come to the reasons for reopening of the same , it is very clear that at the
first paragraph itself learned AO referred to the documents that were
unearthed during the search and seizure operations at various premises of
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Jain brothers and while referring to the documents flagged at "A", which
according to the learned AO is the specific information regarding the
assessee in this case, learned AO felt that it reveals the involvement of the
assessee in taking the four accommodation entries enumerated thereunder.
17. Further vide paragraph no.4(a) while referring to certain documents
and other sized annexure like A-46, A-40, A-24 etc. learned AO recorded
that such documents revealed that the assessee has been providing
accommodation entries. The letter of Investigation Wing does not contain
the discussion which the reasons for reopening contain. Learned AO
translated the suggestion "considered the matter and issue notice u/s 148, if
required" of the Investigation Wing into action by applying his mind to the
specific information contained in Annexure "A-52 P-38" vide S.No.2 to 5
and also the other seized annexure including A-46, A-40, A-24 etc.
Learned AO recorded that the assessee is involved in both taking and
giving accommodation entries.
18. Then the learned AO referred to the completed assessment u/s 143(3)
vide order 25.11.2008 and the details furnished by the assessee at that time
relating to the share capital observed that at that time the assessee did not
disclose that such entries were accommodation entries. In other words, the
reasons recorded by the learned AO clearly show the application of mind
not only to the seized material that was forwarded to him but also it
contains a recital to the effect that the assessee was guilty of not furnishing
the details truthfully.
19. On a careful appraisal of the letter of the Investigation Wing and the
reasons recorded for the reopening of the case, we are of the considered
opinion that there is no strength in the saying that the learned AO did not
independently apply his mind to the information furnished by the
Investigation Wing or that he did not record that the escapement of income
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was due to the non-furnishing of the details fully and truly. We shall have
to keep in mind that at this stage law does not empower the learned AO to
make rowing enquiries by issuing process to the persons or for production
of documents without assuming jurisdiction by issuance of notice u/s 148
of the Act. At this stage the independent application of mind by the learned
AO is limited to the area of the available material on record. Learned AO
very succinctly referred to the information and documents furnished to him
by the Investigation Wing. He evaluated the same, culled out the requisite
information that was tabled in the reason for reopening of the case and it is
only after apprising the contents of the seized material in the light of the
truthfulness of the details that were furnished at the time of the original
assessment u/s 143(3) of the Act. He reached a conclusion that there are
reasons to believe that income that should have been charged to tax had
escaped assessment. According to us absolutely there are no reasons to
interfere with the reopening of the matter.
20. Nextly, coming to the question of possession of documents, record
reveals that during assessment proceedings the assessing officer by letter
dated 10.10.2013 requested for certain documents seized at the time of
search. When the learned AO was conducting an elaborate enquiry u/s 147
of the Act, he felt the need of certain documents. It is not as though the
learned AO had to have these documents also for forming the opinion there
is prima facie reason to believe that income escaped assessment. Let there
not be any confusion with the sufficiency of material at each of these two
stages. There were documents before the learned AO while recording the
reasons to believe that income escaped assessment but such document may
not be good enough to conclude the assessment and for such purpose
learned AO must have felt the need to secure the other material also.
Merely because some other material was sought at a latter point of time to
conclude the assessment, it cannot be inferred that there were no
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documents before the learned AO when he recorded the reasons to believe
the escapement of income from assessment. On this aspect also, we find it
diddicult to sustain the findings of the learned CIT(A).
21. Coming to the non furnishing of the proforma for approval u/s 151 of
the Act, learned CIT(A) observed that it was me3ntioned in the assessment
order that the approval of CIT was obtained. Though the learned CIT(A)
stated that the relevant case was not forwarded to him by the AO, it is
pertinent to note that the learned CIT(A) did not draw any adverse
inference on this aspect. When the letter through which sanction of the
CIT was conveyed was furnished to the assessee, the assessee could have
obtained other requisite information from the CIT himself. Assessee is not
sure as to what was the endorsement of the learned CIT(A) in the proforma.
Often times it is possible that the application of mind of the CIT to the
proposal in elaboration would be there on the note file but it would have
simply been mentioned in the proforma at the column meant for such
purpose as "Yes, I am satisfied". Unless and until we look into the file in
its entirety, it is not possible for us to say whether there is sufficient
compliance with section 151 in this case or not. The assessee cannot ask
us to draw an adverse inference on that point without discharging his onus.
22. For these reasons, we are of the considered opinion that the reasons
recorded by the learned CIT(A) to hold that the notice u/s 148 is invalid
and the assessment u/s 143(3) read with Section 147 of the Act is void ab
initio. We, therefore, agree with the revenue that the learned AO rightly
and properly recorded the reasons by independent application of mind and
his assumption of jurisdiction by issuing notice u/s 148 of the Act is valid.
We find from the impugned order that in respect of Ground No.2 learned
CIT(A) did not appreciate the evidence on record for recording the issue on
merits in the way in which he is expected to do because vide para 4 of his
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order he was swept by his findings that for want of validity of notice u/s
148, assessment u/s 147 was void ab initio. We are of the considered
opinion that the matter requires the consideration of the first appellate
authority on merits afresh after affording an opportunity to the assessee of
being heard. We, therefore, while allowing the grounds of appeal, set aside
the impugned order and remand the matter to the file of the learned CIT(A)
for fresh disposal on merits.
23. In the result, appeal of the revenue is allowed for statistical purposes.
Order pronounced in the open court on 20th November, 2018.
Sd/- sd/-
(O.P. KANT) (K. NARASIMHA CHARY)
ACCOUNTANT MEMEBR JUDICIAL MEMBER
Dated 20th November, 2018
VJ'
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
By order
Asstt. Registrar
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Draft dictated 19.9.2018
Draft placed before author 19.9.2018
Approved Draft comes to the 19.9.2018
Sr.PS/PS
Order signed and pronounced on 20.9.2018
File sent to the Bench Clerk 20.9.2018
Date on which file goes to the AR
Date on which file goes to the
Head Clerk.
Date of dispatch of Order.
Date of uploading on the website 20.9.2018
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