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Mini Leisure City Pvt. Ltd., C/o Kapil Goel, Advocate, A-1/25, Sector 15, Rohini, New Delhi. Vs Income Tax Officer, Ward 6(4), New Delhi.
December, 03rd 2014
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03

               IN THE INCOME TAX APPELLATE TRIBUNAL
                    DELHI BENCHES `E' NEW DELHI

       BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
                     AND
       SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER

                      ITA NO. 6153/DEL/2012
                      ASSTT.YEAR: 2001-02

                      ITA NO. 6163/DEL/2012
                      ASSTT.YEAR: 2002-03

Mini Leisure City Pvt. Ltd.,          vs    Income Tax Officer,
C/o Kapil Goel, Advocate,                   Ward 6(4),
A-1/25, Sector 15,                           New Delhi.
Rohini, New Delhi.
(PAN No. AAACCM9982E)
 (Appellant)                                   (Respondent)
                                   Appellant by: Shri Kapil Goel, Adv.
                                  Respondent by: Shri J.P. Chandraker, Sr.DR

                               O R D E R

PER CHANDRAMOHAN GARG, J.M.

       These appeals have been preferred by the assessee against the separate

orders of the CIT(A)-IX, New Delhi both dated 14.9.2012 in Appeal

No.116/08-09 and 112/07-08 for AY 2001-02 and 2002-03 respectively.


ITA No. 6153/Del/2012

2.     The assessee has raised legal contentions regarding validity of reopening

u/s 147 and 148 of the Income Tax Act, 1961 which read as under:-

                                                                               1
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03




             "Validity of Reopening u/s 148
           That on the facts and in the circumstances of the case and
     in law, learned CIT-A erred in upholding the reopening action of
     Ld AO which stands vitiated inter alia for following reasons:
     a.        Notice u/s 148 is vague and do not meet testimony of law;
     b.      Border line reasons are recorded belatedly on basis of
     stale information and consequential notice u/s 148 could have
     been issued in March 2007, instead waiting for last date thereby
     making assessee's task difficult u/s 68;
     c.       Total lack of tangible material/reasonable cause and
     justification
     d.      Absence of nexus (much less live nexus) between alleged
     information (unknown whether exists on file or not) and tentative
     inference drawn;
     e.     Non Application of mind much less independent
     application of mind
     f. Total lack of clarity on nature of transaction in reasons
     recorded ."
3.     Apropos above ground of the asssessee, we have heard arguments of both

the sides and carefully perused the record, inter alia rejection of objections of the

assessee to initiation of proceedings u/s 147/148 of the Act, reassessment order

and impugned order of the CIT(A). We have also considered the ratio of the

decisions relied by both the parties.


4.     Ld. Counsel for the assessee submitted that on the facts and circumstances

of the case and in law, the CIT(A) erred in upholding the reopening action of the

AO which stands vitiated as notice u/s 148 of the Act is vague and does not meet


                                                                                   2
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03

the testimony of law. Ld. Counsel further contended that the AO has recorded

belatedly border line reasons on the basis of stale information and consequential

notice u/s 148 of the Act which have been issued in March 2007. Ld. Counsel

further submitted that there is a total lack of tangible material, reasonable cause

and justification for initiation of reassessment proceedings in absence of nexus

between the alleged information and tentative inference drawn by the AO by

non-application of independent mind. Ld. Counsel vehemently contended that

there is a total lack of clarity on the nature of transaction in the reasons recorded.

Ld. Counsel reiterated its objections to the initiation of reassessment

proceedings u/s 147 and 148 of the Act which was submitted before the AO vide

letter dated 28.11.2008 and submitted that the assessee has sought to make a

case of judicial infirmity and the issuance of notice u/s 148 of the Act mainly on

the ground that the AO has merely acted upon the direction of the Investigation

Wing. The assessee strongly contended that the details of the share application

money received by the assessee had been duly submitted by the assessee during

the course of assessment proceedings u/s 143(3) of the Act. Ld. Counsel also

contended that the notice has been issued after expiry of four years from the end

of assessment year.


5.     Ld. Counsel has drawn our attention towards reasons recorded and

submitted that the whole reopening was made on the basis of borrowed

satisfaction without application of mind as the reasons recorded are based on


                                                                                    3
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03

vague and sketchy information and reflect total non-application of mind on the

part of reason recording authority i.e. the assessing officer. Ld. Counsel further

contended that there is no minimal discussion in the reasons as to how the AO

has independently believed that the amount is income escaping assessment in

the hands of assessee company for the period under consideration.


6.     Ld. Counsel has also placed his reliance on various decisions of Hon'ble

Jurisdictional High Court including decision of Hon'ble Jurisdictional High

Court of Delhi in the case of Signatures Hotels Pvt. Ltd. vs ITO and

Another (2011) 338 ITR 51 (Delhi) , CIT vs Insecticides (India) Ltd. (2013)

357 ITR 330 and decision of ITAT `E' Bench dated 27.08.2013 in the case of

ITO vs On Exim Pvt. Ltd. in ITA No. 1116/Del/2011 for AY 2001-02.

7.     Replying to the above, ld. DR supported the action of the authorities

below and submitted that the AO has reason to believe that the assessee has

received two amounts of Rs.2,50,000/- each from alleged accommodation entry

providers and, therefore, there was escapement of assessment by the assessee.

The DR has also drawn our attention towards reasons recorded by the AO prior

to issuance of notice u/s 148 of the Act and submitted that the assessee has taken

after paying unaccounted cash to the entry providers as the statement of

concerned persons of these concerns to this effect have been recorded before the

Investigation Wing.



                                                                                4
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03

8.     At the outset, we deem it appropriate to reproduce the reasons recorded by

the AO for initiation of reassessment proceedings u/s 147 of the Act and

issuance of notice u/s 148 of the Act which reads as under:-


             "In this case information has been received from Director
        of Income Tax, (Investigation), New Delhi that the assesse has
        received two amounts of Rs.250000/- each from FNS
        Consultancy P Ltd. & Maestro Marketing & Advrt. P Ltd vide
        instruments No 916272 and 172200 drawn on Federal Bank,
        Karol Bagh and Karur Vysya Bank Karol Bagh respectively.
        The said instruments are in the nature of an accommodation
        caries, which the assesse has taken after paying unaccounted
        cash to these concerns who are the known entry operators as
        the statement of the concerned persons of these concerns to this
        effect have been recorded before the investigation Wing. In
        addition the assesse has given some commission to the entry
        operator in cash. Therefore, I have reason to believe that an
        income of Rs. 5,00,000/- and commission @ 1 % amounting to
        Rs. 500000/- has escaped assessment in the assessment year
        2001-02 and the case is fit for issuing notice u/s 148 of the I.T.
        Act, 1961."
9.     In the case of M/s On Exim Pvt. Ltd. (supra), the coordinate bench of this

Tribunal has held as under:-


             "10. The learned counsel for the assessee has also relied
        upon the various decisions of Hon'ble Jurisdictional High
        Court in support of his contention that the notice has been
        issued on the basis of vague information alleged to have been
        received from the Investigation Wing. We find that Hon'ble
        Jurisdictional High Court in the case of Signature Hotels
        P.Ltd. (supra) held as under:-
             "allowing the petition, that the reassessment proceedings
        were initiated on the basis of information received from the
        Director of Income-tax (Investigation) that the petitioner had
        introduced money amounting to Rs.5 lakhs during financial
        year 2002-03 as stated in the annexure. According to the
        information, the amount received from a company, S, was




                                                                               5
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03

        nothing but an accommodation entry and the assessee was the
        beneficiary. The reasons did not satisfy the requirements of
        section 147 of the Act. There was no reference to any
        document or statement, except the annexure. The annexure
        could not be regarded as a material or evidence that prima
        facie showed or established nexus or link which disclosed
        escarpment of income. The annexure was not a pointer and did
        not indicate escapement of income. Further, the Assessing
        Officer did not apply his own mind to the information and
        examine the basis and material of the information. There was
        no dispute that the company, S, had a paid-up capital of Rs.90
        lakhs and was incorporated on January 4, 1989, and was also
        allotted a permanent account number in September, 2001.
        Thus, it could not be held to be a fictitious person. The
        reassessment proceedings were not valid and were liable to be
        quashed."
            11. Similar view is taken in the case of Sarthak Securities
        Co.P. Ltd. (supra), wherein their Lordships held as under:-
             "allowing the petition, that the formation of belief was a
        condition precedent as regards the escapement of the tax
        pertaining to the assessment year by the Assessing Officer. The
        Assessing Officer was required to form an opinion before he
        proceeded to issue a notice. The validity of reasons, which
        were supposed to sustain the formation of an opinion, was
        challengeable. The reasons to believe were required to be
        recorded by the Assessing Officer. Once the ingredients of
        section 147 were fulfilled, the Assessing Officer was competent
        in law to initiate the proceedings under section 147. The
        Assessing Officer was aware of the existence of the four
        companies with whom the assessee had entered into
        transaction. Both the orders showed that the Assessing Officer
        was made aware of the situation by the investigation wing and
        there was no mention that these companies were fictitious
        companies. Neither the reasons in the initial notice nor the
        communication providing reasons remotely indicated
        independent application of mind. Though conclusive proof was
        not germane at this stage the formation of belief must be on
        the base or foundation or platform of prudence which a
        reasonable person was required to apply. From the perusal of
        the reasons recorded and the order of rejection of objections,
        the names of the companies were available with the authority

                                                                          6
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03

        and their existence was not disputed. The assessee in its
        objections had stated that the companies had bank accounts
        and payments were made to the assessee through banking
        channel. The identity of the companies was not disputed.
        Under these circumstances, the initiation of proceedings under
        section 147 and issuance of notice under section 148 of the Act
        were to be quashed."
        12. When we examine the reasons recorded in the light of
        above decisions of Hon'ble Jurisdictional High Court, we are
        of the opinion that the ratio of the above decisions would
        operate in favour of the assessee because in the appeal before
        us also, the only information received by the Assessing Officer
        was that M/s Aayushi Stock Brokers (P) Limited is found to be
        providing accommodation entries in the form of bogus share
        transactions, bogus share capital etc. Then, there is a mention
        that the assessee has received bogus accommodation entries
        from such party, detail of which is as under:-
              S.No. Date Name & Nature of Ledger No.               Amt.
                               A/c
              1 13/03/01 Federal Bank        -/502             500000/-
              2 21/03/01             "   694205/550         10,00,000/-
              3 24/03/01         "       694235/562        10,00,000/-
              4 28/03/01        "        694238/605          450000/-
        13. However, the detail given is only with regard to name of
        the bank, ledger account number and amount. Even the
        nature of transactions is not given, much less to establish that
        the above transactions are in the nature of accommodation
        entries. It has been stated by the learned counsel at the time of
        hearing before us that the assessee has only sold the shares
        through M/s Aayushi Stock Brokers (P) Limited and the sale
        proceed has duly been considered while computing the income
        of the assessee for the assessment year under consideration. In
        view of the above, in our opinion, the ratio of the above
        decisions of Hon'ble Jurisdictional High Court would be
        squarely applicable and, respectfully following the same, we
        hold that the reasons did not satisfy the requirement of Section
        147.

                                                                            7
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03

        14. In view of the totality of above factual as well as legal
        position, we hold that the notice issued under Section 148 was
        not valid. The same is quashed. Once the notice issued under
        Section 148 is quashed, the assessment order passed in
        pursuance thereto is also quashed."
10.    In view of above, turning to the factual matrix of the present case and

from the reasons recorded by the AO, we clearly see that even the nature of the

transaction has not been given by the AO in the reasons recorded, much less to

establish that the impugned transactions are in the nature of accommodation

entries. It has been stated by the ld. Counsel of the assessee during the course of

hearing before us that the assessee has only sold the shares through M/s FNS

Consultancy P. Ltd. and Maestro Marketing & Advrt. P. Ltd. and the sale

consideration was received through banking channels. Ld. Counsel has also

stated that the sale proceeds have been duly considered while computing the

income of the assessee for the assessment year under consideration. In view of

above, we are inclined to hold that the factum of the case of On Exim (supra) are

similar to the facts of the present case, hence, in our opinion, the ratio of the

decision of Hon'ble Jurisdictional high Court of Delhi in the case of Signature

Hotels Pvt. Ltd. (supra) and Sarthak Securities Co.P. Ltd. (supra), the decision

of ITAT É' Bench Delhi in the case of On Exim (supra) would be squarely

applicable to the present case and respectfully following the same, we hold that

the reasons did not satisfy the requirement of section 147 of the Act.




                                                                                 8
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03

11.    We also note that the DR has not disputed this fact that the assessee has

received sale proceed and the shares through banking channels and the sale

consideration has been duly considered while computing the income of the

assessee for the assessment year under consideration.               Under these

circumstances and totality of the above factual as well as legal position, we hold

that the notice issued u/s 148 was not valid and the same is quashed. Since

notice u/s 148 of the Act has been quashed by the earlier part of this order,

reassessment order passed in pursuance thereto also deserves to be quashed and

we quash the same. Accordingly, legal objections in ground of the assessee

towards validity of reopening and issuance of notice u/s 147 and 148 of the Act

are hereby allowed.

12.    Since we have quashed notice u/s 148 of the Act and reassessment order

passed in pursuance thereto, therefore, other grounds of the assessee on merits

do not survive for adjudication and we also dismiss the same.


ITA No. 6163/Del/2012 for AY 2002-03

13.    In the beginning, both the parties agreed that the ground of the assessee

regarding validity of reopening of assessment u/s 147/148 of the Act may be

considered first. The legal ground raised by the assessee in this regard reads as

under:-




                                                                                9
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03

             "Validity of Reopening u/s 148
            That on the facts and in the circumstances of the case and
      in law, learned CIT-A erred in upholding the reopening action of
      Ld AO which stands vitiated for following reasons:
      a.       Total lack of tangible material/reasonable cause and
      justification
      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 as apparent from fact that 3 different figures
      are mentioned for income escapement in reasons recorded.
      d.     Total lack of clarity on nature of transaction in reasons
      recorded ."
14.    Ld. Counsel of the assessee referring to the reasons recorded by the AO

pointed out that in the reasons recorded, the AO simply reproduced certain

details received from the Investigation Wing without any application of mind

and issued notice u/s 148 of the Act. Ld. Counsel of the assessee referred to the

details and table in the reasons recorded and pointed out that in the first table,

there are four entries of Rs. 1.5 lakh each which comes to Rs.6 lakh in para (ii).

The amount of transaction involved has been mentioned as Rs.9,50,000/- in para

(iii), the income of Rs. 10 lakh has escaped his mention.            Ld. Counsel

vehemently contended that the AO has taken three different amounts in the

script of reason to believe which show that the AO has not applied his mind

towards details and information received from the Investigation Wing and this

conduct clearly shows non-application of mind by the AO, therefore, initiation

of reassessment proceedings u/s 147 of the Act and issuance of notice u/s 148 of

                                                                               10
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03

the Act is not valid and sustainable. Ld. Counsel has placed reliance on the

following decisions of Hon'ble Jurisdictional High Court of Delhi:-


      i)        CIT vs Suren International Pvt. Ltd. (2013) 357 ITR 24 (Del)

      ii)       Signature Hotels (P) Ltd. vas ITO (supra)

      iii)      Decision of ITAT `B' Bench Delhi in ITA No. 428/D/2010 dated

                14.8.2014 in the case of ITO vs M/s Comero Leasing & Financial Pvt.

                Ltd.


15.          Replying to the above, ld. DR submitted that the AO had received definite

information from the DIT, New Delhi with regard to accommodation entries

being provided by various accommodation entry operators. The DR further

contended that the assessee was beneficiary of such accommodation entries and

during the course of investigation, Investigation Wing found that such

information was forwarded to the AO for necessary action. The DR further

submitted that the AO has reopened the assessment on the basis of specific

information with regard to accommodation entries taken by the assessee, the

details of which are given in the reasons recorded which shows complete detail

with regard to the date on which the entries were received, account from which

these entries were received, name and branch of the bank and the amount. Ld.

DR supported the action of the authorities below and submitted that the AO had

certainly had valid reason to believe that the income of the assessee had escaped

assessment, therefore, reopening of the assessment was valid.

                                                                                   11
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03

16.    We have carefully considered the submissions of both the sides and

perused the relevant material placed before us. The reasons recorded by the AO

for issuing notice u/s 148 of the Act read as under:-


              "(i) Certain investigations were carried out by the
       directorate of Investigation, Unit, V. Jhandewalan, New Delhi
       in respect of the bogus/accommodation entries provided by the
       certain individuals / companies. The name of the appellant
       figures as one of the beneficiaries of these alleged bogus
       transactions given by the Directorate after making the
       necessary enquiries. It has been revealed that the following
       entries have been received by the appellant:-
Beneficiary        Beneficiary    Beneficiary      Value of entry   Instrument
Name               Bank           Bank Branch      taken            No.
I                  II             III              IV               V
M/s       Mini     Vijaya Bank    Karol Bagh,      Rs.1,50,000      2169
Leisure P. Ltd.                   New Delhi
M/s       Mini     Vijaya Bank    Karol Bagh,      Rs.1,50,000      P924448
Leisure P. Ltd.                   New Delhi
M/s       Mini     Vijaya Bank    Karol Bagh,      Rs.1,50,000      805
Leisure P. Ltd.                   New Delhi
M/s       Mini     Vijaya Bank    Karol Bagh,      Rs.1,50,000      811
Leisure P. Ltd.                   New Delhi

Date of Entry Name         of     Bank       from Branch         of Account
              account             which           Entry             No.Entry
              holder       of
              entry
VI            VII                 VIII             IX          X
02/01/2002    M/s Maestro         Ratnakar         Karol Bagh, 46
              Mkt.&               Bank             New Delhi
              Adv.P.Ltd.
02/01/2002    M/s       Arun      Karur Vysya      Karol Bagh, CA 2813
              Finvest P.Ltd.      Bank             New Delhi
02/01/2002    Sh.     Kamal       Ratnakar         Karol Bagh, 213
              Dhawan              Bank             New Delhi
02/01/2002    Sh.      Rajan      Ratnakar         Karol Bagh, 212
              Jassal              Bank             New Delhi


                                                                                 12
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03

              (ii) The transactions involving Rs.9,50,000/- mentioned
       in the manner above, constitutes fresh information in respect of
       the appellant as a beneficiary of bogus accommodation entries
       provided to it.
             (iii) On the basis of this new information, I have reason
       to believe that the income of Rs.10,00,000/- has escaped
       assessment as defined by sec. 147 of the Income Tax Act in the
       AY 2002-03. Therefore, this is a fit case for the issuance to the
       notice u/s 148."
17.    From careful reading of above reasons recorded by the AO, we find that

in the first table, the amount of four entries of Rs.1,50,000 each has been shown

which comes to a total of Rs. 6 lakh. In para (ii), the amount of transaction of

bogus accommodation entries has been mentioned as Rs.9,50,000 and in para

(iii), the income of Rs. 10,00,000 has escaped assessment as mentioned. In this

situation, we clearly observe that the AO has taken three different amounts in

the reasons recorded for reopening of assessment u/s 147 of the Act and for

issuance of notice u/s 148 of the Act. At this point, we take note of the decision

of ITAT Delhi `B' Bench in the case of ITO vs M/s Comero Leasing &

Financial Pvt. Ltd. (supra) wherein after considering the ratio of the decision of

Hon'ble Jurisdictional High Court in the case of CIT vs Suren International Pvt.

Ltd. (supra), it has been held that if the AO had not applied his mind in the

reasons recorded, then there would be no belief that income has escaped

assessment which can be stated to have been formed based on such reasons as

recorded by the AO for issuance of notice u/s 148 of the Act. The relevant







                                                                               13
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03

operative part of this order of the Tribunal in the case of M/s Comero Leasing &

Financial Pvt. Ltd. (supra):-


       "We find that the identical case was considered by Hon'ble
      Jurisdictional High Court In the case of Suren International
      P.Ltd. (supra), wherein, at page 32 of the Report, their Lordships
      held as under:-
      "13. We have heard counsel for the parties at length.
      14. The learned counsel for the appellant contended that even
      though there is no specific allegation that the assessee had failed
      to disclose all the material facts but the same can be gleaned
      from the reasons itself. We are unable to accept this contention.
      In the first Instance, we do not find the reasons as recorded by
      the Assessing Officer to be reasons in law, at all. A bare perusal
      of the table of alleged accommodation entries Included in the
      reasons as recorded, discloses that the same entries have been
      repeated six times. This is clearly Indicative of the callous
      manner In which the reasons for initiating reassessment
      proceedings are recorded and we are unable to countenance that
      any belief based on such statements can ever be arrived at. The
      reasons have been recorded without any application of mind and
      thus no belief that income has escaped assessment can be stated
      to have been formed based on such reasons as recorded. "
      8. The facts in the assessee's case are Identical. In this case also,
      the Assessing Officer, except preparing the table of alleged
      accommodation entries from the details claimed to have been
      received from the Investigation Wing, has not at all applied his
      mind. From a bare perusal of the table of the alleged
      accommodation entries, it is evident that the same entries have
      been repeated five times. This is the clear indication of non-
      application of mind by the Assessing Officer. Therefore, the
      above decision of Hon'ble Jurisdictional High Court would be
      squarely applicable to the facts of the assessee's case."


18.    In the appeal before us, the contention of the assessee is that the AO

issued a notice u/s 148 of the Act mechanically without application of mind and


                                                                              14
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03

without forming a prima facie belief that the income has escaped assessment,

simply on the basis of information alleged to have been received from the

Investigation Wing. On the above facts of this case, we find this contention of

the ld. Counsel of the assessee to be correct and, moreover, on identical facts,

Hon'ble Jurisdictional High Court of Delhi in the case of Suren International

Pvt. Ltd. (supra) held that the reasons recorded without any application of mind

cannot be said to be a proper belief with regard to escapement of income. We,

therefore, respectfully following the decision of Hon'ble Jurisdictional High

Court of Delhi in the case of CIT vs Suren International Pvt. Ltd. (supra), quash

the initiation of reassessment proceedings and notice u/s 147 and 148 of the Act

respectively and reassessment order in pursuance thereto is also quashed.

Accordingly, legal ground no. 1 of the assessee is hereby allowed.


Ground No. 2 & 3 of the assessee

19.    Since we have quashed notice u/s 148 of the Act and reassessment order

passed in pursuance thereto, thus, other grounds of the assessee do not survive

for adjudication on merits and we dismiss the same.


20.    In the result, both the appeals of the assessee are hereby allowed as

indicated above.




                                                                              15
ITA No. 6153, 6163/Del/2012
Asstt.Year: 2001-02, 2002-03




       Order pronounced in the open court today on 28.11.2014.


        Sd/-                                        Sd/-

 (G.D. AGRAWAL)                                (CHANDRAMOHAN GARG)
VICE PRESIDENT                                   JUDICIAL MEMBER

DT. 28th NOVEMBER 2014
`GS'

Copy forwarded to:

       1.   Appellant
       2.   Respondent
       3.   C.I.T.(A)
       4.   C.I.T. 5. DR
                                                    By Order



                                                 Asstt..Registrars




                                                                     16

 
 
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