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:-
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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
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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
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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.
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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
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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
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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.
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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.
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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:-
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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
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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.
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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
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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
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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
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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.
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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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