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COMMISSIONER OF INCOME TAX - IV Vs. M/S INSECTICIDES (INDIA) LTD.
May, 31st 2013
             THE HIGH COURT OF DELHI AT NEW DELHI

%                                      Judgment delivered on: 20.05.2013

+       ITA 608/2012

COMMISSIONER OF INCOME TAX - IV                                ... Appellant

                                        versus

M/s INSECTICIDES (INDIA) LTD.                                  ... Respondent

+       ITA 609/2012

COMMISSIONER OF INCOME TAX - IV                                ... Appellant

                                        versus

M/s INSECTICIDES (INDIA) LTD.                                  ... Respondent

Advocates who appeared in this case:

For the Appellant     : Mr N. P. Sahni with Mr Ruchesh Sinha
For the Respondent    : Mr K.V.S Gupta

CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE VIBHU BAKHRU

                                  JUDGMENT

BADAR DURREZ AHMED, J (ORAL)

1.      These appeals by the revenue are directed against the order dated
12.10.2011 passed by the Income Tax Appellate Tribunal, New Delhi in
ITA Nos. 2332-2333/Del/2010 relating to the assessment years 2002-03




ITA 608-609/2012                                                     Page 1 of 9
and 2003-04 (respectively). In both these appeals the issue relates to the
validity of the reassessment proceedings under Section 147 of the Income
- tax Act, 1961 (hereinafter referred to as "the said Act").


2.      Insofar as assessment year 2002-03 is concerned, the original
assessment under Section 143(3) of the said Act was completed on
29.11.2004. The notices under Section 148 were issued on 21.09.2006.
As regards, assessment year 2003-04, there was no assessment under
Section 143(3) of the said Act, however, an intimation under Section
143(1) thereof had been issued. The notice under Section 148 seeking to
re-open the assessment was issued on 17.10.2006.





3.      The reasons indicated behind the re-opening of the assessments
were identical in both the cases. We are setting out below the reasons
given in respect of the assessment year 2002-03. They are as under:-
                   "It has been informed by the Director of Income-tax
        (Inv.), New Delhi vide letter dated 16.6.2006 that the
        above named company was involved in giving and taking
        bogus entries/transactions during the F.Y. 2001-02.
                   From the information gathered by the DIT(Inv.)-1,
        New Delhi that the assessee was involved in giving and
        taking accommodation entries only and represented
        unsecured money of the assessee company is actually
        unexplained income of the assessee company. The assessee
        company has failed to disclose fully and truly all the




ITA 608-609/2012                                                    Page 2 of 9
        material facts and source of these funds routed through
        bank accounts of the assessee company. I, therefore have
        reasons to believe that the income has escaped assessment
        within the meaning of section 147 of the I.T. Act, 1961 for
        the asstt. Year referred above.
                   Hence notice u/s 148 is issued."

The respondent / assessee had filed objections against the said notices
under Section 148 of the said Act. However, without disposing of those
objections by reasoned order, the Assessing Officer framed reassessment
orders on 15.10.2007 in respect of both the years. By virtue of the
reassessment orders, the Assessing Officer made an addition of ` 30 lakhs
in respect of the assessment year 2002-03 and an addition of ` 35 lakhs in
respect of the assessment year 2003-04.               Essentially, the Assessing
Officer held that the said sums of money represented income of the
assessee from undisclosed sources which had been shown as share
application money. In other words, the Assessing Officer held the said
sums to be bogus entries.

4.      Being aggrieved by the said orders passed by the Assessing
Officer, the respondent / assessee preferred appeals. Those appeals were
allowed by the Commissioner of Income Tax (Appeals) by a common
order dated 06.01.2011. Insofar as the assessment year 2002-03 was
concerned, the CIT (Appeals) held that the reassessment proceedings
were bad inasmuch as it amounted to a mere change of opinion. The
findings of the CIT (Appeals) to this effect were as under:-




ITA 608-609/2012                                                      Page 3 of 9
                   "The submissions made on behalf of the appellant
        company and reasons recorded by the Ld AO have been
        carefully perused. On consideration, I find that the issue
        of share capital and share application money has come up
        in the regular assessment proceedings and the appellant
        company, vide its letter dated 09.11.2004, had submitted
        detailed written reply along with necessary details of
        share capital, share holding pattern and confirmation of
        the persons contributing to share capital along with proof
        of filing of their income tax return, PAN nos.
        Ward/Circle/Range etc.        Further, this fact was again
        brought to the notice of Ld AO, vide appellant's letter
        dated 28.08.2007, while filing the objections to the
        reopening the assessment for the assessment year under
        consideration. On a perusal of the said letter it is seen
        that not only the issue was examined by the AO but also
        the claim of the appellant company was accepted in the
        original assessment. In this factual position, it cannot be
        held that the issue of share capital of ` 30 lacs was not
        examined and decided by the Ld AO at the time of the
        regular assessment. I also find myself in agreement with
        the Ld counsel that no fresh material, let alone tangible
        material, has come to his possession so as to
        empower/enable the AO to take recourse to the
        provisions of section 147 of the IT Act, 1961. Therefore,




ITA 608-609/2012                                                      Page 4 of 9
        the reopening of assessment is based merely on change of
        opinion, which I am afraid, is not sustainable in law.
        Therefore, in the light of the judgment relied upon by the
        ld counsel, I have no hesitation in holding that the
        reopening of assessment in terms of section 147 of the
        Act is not sustainable in law."


5.       In respect of both the assessment years, the CIT (Appeals) held in
favour of the assessee on merits also.


6.      Being aggrieved by the deletion of the addition made by the CIT
(Appeals), the revenue preferred the above mentioned appeals before the
Tribunal. As mentioned above, the Tribunal rejected those appeals and
that is how the revenue has filed these appeals before us.


7.      We may point out at this juncture itself that the Tribunal did not go
into the question of merits. It only examined the question of the validity
of the proceedings under Section 147 of the said Act. The Tribunal, in
essence, held that the purported reasons for reopening the assessments
were entirely vague and devoid of any material. As such, on the available
material, no reasonable person could have any reason to believe that
income had escaped assessment. Consequently, the Tribunal held that the
proceedings under Section 147 of the said Act were invalid.




ITA 608-609/2012                                                     Page 5 of 9
8.      The Tribunal gave detailed reasons for concluding that the
proceedings under Section 147 were invalid. Instead of adding anything
to the said reasons, we think it would be appropriate if the same are
reproduced:-
        "In the case at hand, as is seen from the reasons recorded
        by the AO, we find that the AO has merely stated that it
        has been informed by the Director of Income-tax (Inv.),
        New Delhi, vide letter dated 16.06.2006 that the above
        named company was involved in giving and taking bogus
        entries/transactions during the relevant year, which is
        actually unexplained income of the assessee company.
        The AO has further stated that the assessee company has
        failed to disclose fully and truly all material facts and
        source of these funds routed through bank account of the
        assessee company. In the reasons recorded, it is nowhere
        mentioned as to who had given bogus entries/transactions
        to the assessee or to whom the assessee had given bogus
        entries or transactions. It is also nowhere mentioned as to
        on which dates and through which mode the bogus
        entries and transactions were made by the assessee. What
        was the information given by the Director of Income-tax
        (Inv.), New Delhi, vide letter dated 16.06.2006 has also
        not been mentioned. In other words, the contents of the
        letter dated 16.06.2006 of the Director of Income-tax
        (Inv.), New Delhi have not been given. The AO has




ITA 608-609/2012                                                      Page 6 of 9
        vaguely referred to certain communications that he had
        received from the DIT(Inv.), New Delhi; the AO did not
        mention the facts mentioned in the said communication
        except that from the informations gathered by the DIT
        (Inv.), New Delhi that the assessee was involved in
        giving and taking accommodation entries only and
        represented unsecured money of the assessee company is
        actually unexplained income of the assessee company or
        that it has been informed by the Director of Income-tax
        (Inv.), New Delhi vide letter dated 16.06.2006 that the
        assessee company was involved in giving and taking
        bogus entries/transactions during the relevant financial
        year. The AO did not mention the details of transactions
        that represented unexplained income of the assessee
        company. The information on the basis of which the AO
        has initiated proceedings u/s 147 of the Act are
        undoubtedly vague and uncertain and cannot be
        construed to be sufficient and relevant material on the
        basis of which a reasonable person could have formed a
        belief that income had escaped assessment. In other
        words, the reasons recorded by the AO are totally vague,
        scanty and ambiguous. They are not clear and
        unambiguous but suffer from vagueness. The reasons
        recorded by the AO do not disclose the AO's mind as to
        what was the nature and amount of transaction or entries,







ITA 608-609/2012                                                    Page 7 of 9
        which had been given or taken by the assessee in the
        relevant year. The reasons recorded by the AO also do
        not disclose his mind as to when and in what mode or
        way the bogus entries or transactions were given or taken
        by the assessee. From the reasons recorded, nobody can
        know what was the amount and nature of bogus entries or
        transactions given and taken by the assessee in the
        relevant year and with whom the transaction had taken
        place. As already noted above, it is well settled that only
        the reasons recorded by the AO for initiating proceedings
        u/s 147 of the Act are to be looked at or examined for
        sustaining or setting aside a notice issued u/s 148 of the
        Act. The reasons are required to be read as they were
        recorded by the AO. No substitution or deletion is
        permissible. No addition can be made to those reasons.
        Therefore, the details of entries or amount mentioned in
        the assessment order and in respect of which ultimate
        addition has been made by the AO, cannot be made a
        basis to say that the reasons recorded by the AO were
        with reference to those amounts mentioned in the
        assessment order. The reasons recorded by the AO are
        totally silent with regard to the amount and nature of
        bogus entries and transactions and the persons with
        whom the transactions had taken place. In this respect,
        we may rely upon the decision of Hon'ble jurisdictional




ITA 608-609/2012                                                      Page 8 of 9
        Delhi High Court in the case of CIT vs. Atul Jain (2000)
        299 ITR 383, in which case the information relied upon
        by the AO for initiating proceedings u/s 147 of the Act
        did indicate the source of the capital gain and nobody
        knew which shares were transacted and with whom the
        transaction has taken place and in that case there were
        absolutely no details available and the information
        supplied was extremely scanty and vague and in that light
        of those facts, the Hon'ble Jurisdictional Delhi High
        Court held that initiation of proceedings u/s 147 of the
        Act by the AO was not valid and justified in the eyes of
        law. The recent decision of Hon'ble jurisdictional High
        Court of Delhi in the case of Signature Hotels (P) Ltd.
        (supra) also supports the view we have taken above."


9.      We do not see any reason to differ with the view expressed by the
Tribunal. No substantial question of law arises for our consideration.
The appeals are dismissed. There shall be no order as to costs.




                                       BADAR DURREZ AHMED, J



                                              VIBHU BAKHRU, J

MAY 20, 2013
SU



ITA 608-609/2012                                                    Page 9 of 9
 
 
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