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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 29/2017 & CM No.1009/2017
PR. COMMISSIONER OF INCOME TAX ..... Appellant
Through: Mr. Ruchir Bhatia, Mr. Puneet Rai &
Mr. Gaurav Khetrapal, Advocates.
versus
RMG POLYVINYL (I) LTD. ..... Respondent
Through: Mr. Kapil Goel & Mr. Mukul Gupta,
Advocates.
CORAM:
JUSTICE S.MURALIDHAR
JUSTICE PRATHIBA M. SINGH
ORDER
% 07.07.2017
Dr. S. Muralidhar, J.:
1. This is an appeal by the Revenue under Section 260A of the Income
Tax Act, 1961 (`Act') against an order dated 12th April, 2016, passed by
the Income Tax Appellate Tribunal (`ITAT') in ITA No.1596/Del/2014
for the Assessment Year (`AY') 2008-09.
2. The question sought to be urged by the Revenue in this appeal is
whether the ITAT was justified in holding that the reopening of the
assessment by the Assessing Officer (`AO') under Section 147/148 of
the Act was bad in law?
3. The admitted fact is that the Assessee filed its return of income for
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the AY in question on 31st October, 2004 declaring an income of
Rs.4,38,958. An intimation was sent under Section 143(1) of the Act.
In other words the return was not processed under Section 143(3) of the
Act.
4. Notice under Section 147 of the Act was issued by the AO to the
Assessee on 25th March, 2011. The following reasons for the re-
opening were furnished to the Assessee for reopening the assessment:
11. Reasons for the belief Information has been received from the
that Information has income has escaped Investigation Wing of
been received from the the Income-tax assessment. Department
income has escaped that M/s Pine View Construction & Traders
Investigation Wing of Pvt. Ltd. is a beneficiary of accommodation
the Income-tax entries received from certain established
assessment. entry operators identified by the
Investigation Wing during the period
relevant to A. Y 2004-05.
A comprehensive investigation was carried
out by the Investigation Wing for
identification of entry operators engaged in
the business of money laundering for the
beneficiaries and on the basis of
investigation carried out and evidences
collected, a detailed report has been
forwarded.
In the instant case, the assessee is found
to be the beneficiary of accommodation
entry from such entry operators as per
the transaction mentioned in the enclosed
Annexure-'A' of Rs.1,56,00,000.
The accommodation entry provider; have
given accommodation entries in the grab of
share application money/
expenses/gift/purchase of shares etc. They
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have worked for commission.
The assessee is a company incorporated
on 11.09.1998. It is noticed that there is
no return of come is available in the AST
database of Income-tax Department.
Therefore. it is clear that the assessee has
not filed return of income for the A. Y.
2004-05 and consequently has not offered
any income for taxation.
Sources of the transactions are not
explained. I, therefore, have reason to
believe that on account failure on the part
of the assessee to disclose truly and fully
all the material facts necessary for
assessment for the above assessment year,
the income chargeable to tax to the extent
of accommodation entry of Rs. 1,56,00,000
has escaped assessment within the meaning
of section 147 of I.T. Act. 1961. To bring
to tax the income which has escaped
assessment, I proposed to issue notice u/s.
148 of the I.T. Act. 1961.
Since, four years has expired from the end
of the relevant assessment year, and no
scrutiny assessment was completed under
Section 143(3) in this case for the said
assessment year, the reasons recorded
above for the purpose of reopening of
assessment is put up kind satisfaction of
Addl. Commissioner of Income Tax,
Range-14, New Delhi in terms of the
proviso of Section 151(2) of the I.T. Act,
1961.
5. As it transpired subsequently there were at least two glaring errors in
the above reasons. The first error was that the AO proceeded on the
basis that "no return of income is available in the AST database of
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Income-tax Department. Therefore, it is clear that the assessee has not
filed return of income for the A. Y. 2004-05 and consequently has not
offered any income for taxation." In the assessment order dated 30th
December, 2011 passed consequent upon the reopening of the
assessment, the very first line states that "the Assessee had filed return
declaring income of Rs.4,38,958 on 31/10/2004 which was processed
under Section 143(1) of the Act on 04.01.2005."
6. The second glaring error in the reasons was that the total of the
accommodation entries was set out as Rs.1.56 crore. In the same
assessment order dated 30th December 2011 in para 2.3 it is stated as
under:
"2.3 It is pertinent to mention here that in the reasons recorded
there was some clerical error as certain single transactions were
appearing in multiple and this resulted in working of the escaped
income to the extent of Rs.1,56,00,000/-. However, the same has
now been considered and stands corrected for the purposes of
completion of proceedings."
7. In para 3.1 of the above assessment order, the AO has set out the
information received from the Investigation Wing regarding the alleged
bogus accommodation entries pertaining to 16 entities which sum in the
aggregate works out to Rs. 78 lakhs.
8. Mr. Ruchir Bhatia, learned Senior Standing Counsel for the Revenue,
relied on the decisions in Income-Tax Officer v. Selected Dalurband
Coal Co. Pvt. Ltd. (1996) 217 ITR 597 and ITO v. Purushottam Das
Bangur (1997) 224 ITR 362 to urge that at the stage of reopening of
the assessment, the AO is not expected to undertake any detailed
ITA 29/2017 Page 4 of 7
inquiry; it was sufficient if on the basis of the information received he
was prima facie satisfied that a case was made out for reopening the
assessment as income had escaped assessment.
9. However, in neither of the above cases are the facts similar to those
in the present case. The two glaring errors in the reasons in the present
case are, in fact, unusual. What the AO might have done if he was
aware, even at the stage of consideration of reopening of the assessment
that a return had in fact been filed by the Assessee and that the extent of
the accommodation entries was to the tune of Rs.78 lakh and not
Rs.1.56 crore would be a matter of pure speculation at this stage. He
may or may not have come to the same conclusion. But that is not the
point. The question is of application of mind by the AO to the material
available with him before deciding to reopen the assessment under
Section 147 of the Act.
10. In this context the following observations of this Court in CIT v.
Suren International (2013) 357 ITR 24 (Del)are relevant:
"....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."
11. There can be no manner of doubt that in the instant there was a
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failure of application of mind by the AO to the facts. In fact he
proceeded on two wrong premises one regarding alleged non-filing of
the return and the other regarding the extent of the so-called
accommodation entries.
12. Recently, in its decision dated 26th May, 2017 in ITA No.692/2016
(Principal Commissioner of Income Tax-6 v. Meenakshi Overseas
Pvt. Ltd.), this Court discussed the legal position regarding reopening
of assessments where the return filed at the initial stage was processed
under Section 143(1) of the Act and not under Section 143(3) of the
Act. The reasons for the reopening of the assessment in that case were
more or less similar to the reasons in the present case, viz., information
was received from the Investigation Wing regarding accommodation
entries provided by a 'known' accommodation entry provider. There,
on facts, the Court came to the conclusion that the reasons were, in fact,
in the form of conclusions "one after the other" and that the satisfaction
arrived at by the AO was a "borrowed satisfaction" and at best "a
reproduction of the conclusion in the investigation report."
13. As in the above case, even in the present case, the Court is unable to
discern the link between the tangible material and the formation of the
reasons to believe that income had escaped assessment. In the present
case too, the information received from the Investigation Wing cannot
be said to be tangible material per se without a further inquiry being
undertaken by the AO. In the present case the AO deprived himself of
that opportunity by proceeding on the erroneous premise that Assessee
had not filed a return when in fact it had.
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14. To compound matters further the in the assessment order the AO
has, instead of adding a sum of Rs.78 lakh, even going by the reasons
for reopening of the assessment, added a sum of Rs.1.13 crore. On what
basis such an addition was made has not been explained.
15. For the aforementioned reasons, the Court is satisfied that no error
was committed by the ITAT in holding that reopening of the
assessment under Section 147 of the Act was bad in law.
16. No substantial question of law arises from the impugned order of
the ITAT.
17. The appeal is dismissed.
CM No.1009/2017
18. For the reasons stated in the application, the delay in re-filing is
condoned and the application is allowed.
S.MURALIDHAR, J
PRATHIBA M. SINGH, J
JULY 07, 2017
b'nesh
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