Income Tax Appellate Tribunal - Delhi
M/S. Metro Decorative Pvt. Ltd., New ... vs Ito, New Delhi on 24 October, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'E' NEW DELHI
BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER
&
SHRI K.N. CHARRY, JUDICIAL MEMBER
ITA No.-450/Del/2014
(Assessment Year: 2004-05)
Metro Decorative Pvt. Ltd. vs ITO
E-430, Greater Kailash-II Ward 6(4)
New Delhi. New Delhi
AADCM5343A
Assessee by Sh. Amit Goel, CA
Revenue by Sh. Pradeep Kumar Neel, Sr. DR
Date of Hearing 07.09.2017
Date of Pronouncement 24.10.2017
ORDER
PER SHRI K.N. CHARY, JUDICIAL MEMBER
Aggrieved by the order dated 29.11.2013 in appeal no. 155/11-12 passed by the Ld. Commissioner of Income Tax (Appeals)-IX, New Delhi (hereinafter for short called as 'the Ld. CIT(A)). Assessee preferred this appeal on the following grounds:
1. "On the facts and circumstances of the case and in law, the Assessing Officer erred in issuing notice u/s 148 of the Income Tax Act, 1961. The notice u/s 148 issued in this case is illegal, void and without jurisdiction and accordingly the 2 ITA No.450/Del/2014 assessment order passed on the foundation of such notice is liable to be quashed. The Ld. Commissioner of Income Tax (Appeal) should have held the reassessment proceedings as illegal, void and without jurisdiction.
2. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeal) erred in confirming the addition made by the Assessing Officer of share application money/share capital of Rs. 20,00,000/- as alleged unexplained income u/s 68 of the Income Tax Act, 1961. The addition made by the Assessing Officer is not sustainable and Commissioner of Income Tax (Appeals) should have deleted the same.
3. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeal) erred in confirming the addition of Rs. 40,000/- made by the Assessing Officer as alleged commission paid. The addition made by the Assessing Officer is not sustainable and Commissioner of Income Tax (Appeal) should have deleted the same.
4. The alleged reasons given by Assessing Officer and CIT (A) for making/confirming the additions of Rs. 20,00,000/- and Rs.
40,000/- are erroneous, both on facts and in law and, therefore, the additions of Rs. 20,00,000/- and Rs. 40,000/- made by the Assessing Officer and confirmed by CIT (A) are liable to be deleted.
The appellant craves leave to add, alter, modify or delete one or more ground of appeal before or at the time of hearing of appeal. The aforesaid grounds of appeal are without prejudice of each other."
2. Briefly stated facts are that the return of income dated 30.10.2004 submitted by the assessee declaring a total income of Rs. 1,72,908/- was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter for short called as 'the Act') and subsequently an information was received from the Investigation Wing, New Delhi that certain persons including the assessee have resorted to money laundering by giving an unaccounted cash to entry 3 ITA No.450/Del/2014 operators and in turn taking cheques and DDs under the garb of share application money or sale proceeds of non-existent goods thereby ploughing back their undeclared cash into its books of accounts. Basing on such information the AO recorded the following reasons for reopening the assessment:
"The investigation wing of the Income Tax Department had unearthed a huge money laundering mechanism wherein it was establish that bogus accommodation entries were provided/taken. These accommodation entries received in lieu of payment of cash of equivalent amount plus commission thereon to the entry operators. For obvious reasons, these cash transactions are not routed through the books of account of the assessee. In this case, information has been received from Assistant Commissioner of Income Tax, Central Circle-4, New Delhi forwarded by Income Tax Officer Ward 14(4), New Delhi vide letter F.No. ITO W 14(4)/2010-11/765 dated 22.03.2011 that during the relevant assessment year, the assessee had received the following cheque amount(s) in nature of accommodation entry from the companies operated by Tarun Goyal (an entry operator) for the AY 2004-05.
Value of Instrument Date on Name of Bank Branch A/c No.
Entry No. by which Account From of Entry Entry
Taken which Entry Holder of Which Given Given
Entry Taken Entry Entry Bank Account
Taken Giving Given
Account
5,00,000 Mahanivesh
India Ltd.
5,00,000 Goofcoo
Finance
Ltd.
5,00,000 DU
Securities
(P) Ltd.
5,00,000 Adonis
Financial
Services (P)
Ltd.
Therefore, I have reason to believe that an income of Rs. 20,00,000/- plus commission @ 2%, thereon amounting to Rs. 40,000/- totaling to Rs. 20,40,000/- has escaped assessment during the assessment 4 ITA No.450/Del/2014 year. On the basis of this information, I have reason to believe that the incomes described above have escaped assessment and the case is fit for issuing. Notice u/s 148 of Income Tax Act, 1961."
Assessment was completed by making addition of Rs. 20,40,000/- being the unexplained credits in the books of the assessee and commission at 2% thereon. In appeal assessee challenged the reopening of the assessment and also the additions. Ld. Commissioner of Income Tax held that the AO followed the procedure by issuing a notice u/s 148 of the Act, as such, there is nothing to vitiate the reopening of the proceedings. In so far as the additions are concerned, Ld. CIT (A) held that in reality all the creditors are only paper companies and the creditworthiness and genuineness of the transactions are not proved as all the three attributes required to be proved by the assessee as per the decision in CIT vs. Lovely Exports P. Ltd. (2008) 216 ITR 195 (SC), CIT vs. Sophia Finance Ltd. (1994) 205 ITR 98. Holding so Ld. CIT (A) confirmed the additions made by the AO. Hence, the assessee is in appeal now before us.
3. It is the argument of the Ld. AR that the reasons recorded by the AO in this case cannot be said to be reasons to believe that any income of the assessee had escaped assessment, for they do not 5 ITA No.450/Del/2014 indicate the application of mind by the AO. According to him the validity or otherwise of the proceedings initiated u/s 147 has to be adjudged on the basis of the reasons recorded, as such, if application of mind is not manifested from the reasons so recorded, such proceedings are invalid and vitiated. He further argued that where the sanction/approval was accorded by the authority for issuing notice u/s 149 of the Act in a mechanical manner and without application of mind, assumption of jurisdiction to reopen the assessment is invalid. For this purpose, he placed reliance on the decisions reported in Pr. CIT vs. G&G Pharma India Ltd. (Delhi High Court) (ITA No. 545/D/2015), Pr. CIT vs. N.C. Cables Ltd. (Delhi High Court) (ITA No. 335/2015), Pr. CIT vs. Meenakshi Overseas Pvt. Ltd. (Delhi High Court) (2017)(S) TMI 1428, CIT vs. S.Goyanka Lime & Chemicals Ltd. (MP High Court) 2015 (5) TMI 217 and CIT vs. S.Goyanka Lime and Chemicals Ltd. (Supreme Court) 64 taxmann.com 313 (2015).
4. On merits he submitted that the details like PAN Card, ITR acknowledgements, audited statements relating to Geefcee Finance Limited, Mahanivesh (India) Ltd., Adonis Financial Services Pvt. 6 ITA No.450/Del/2014 Ltd. and Adonis Securities Private Ltd. all the companies from whom the share application was received are filed establishing not only the identity but also their capacity to invest the amount and the genuineness of the transaction. He submitted that the share application form along with Board Resolution was also made available before the authorities, as such, it is not open for them to say that all the four companies are paper companies and the transaction was not a genuine one. Further in respect of the AY 2005-06 similar reopening of the matter took place on the information furnished by the DIT (Inv.) and it was deleted by the Ld. CIT (A) in appeal by order dated 29.04.2013 and a coordinate bench of this Tribunal in ITA No. 513/Del/2015 upheld the findings of the Ld. CIT (A) deleting the addition made u/s 68 of the Act on account of share application money and the commission thereon.
5. Per contra, Ld. DR heavily relied upon the orders of the authorities below and he submitted that the whole affair of the assessee receiving the share application money of Rs. 20 lacs is a design to create an apparatus to introduce unaccounted money of 7 ITA No.450/Del/2014 the assessee. Whether the creditors or the entry providers should be taxed separately leaving the entry taker, i.e. assessee is free from liability or not is a different issue altogether. But the circumstancial evidences and the design of the entry operator gives the benefit to the assessee more than anyone else. The assessee has introduced unaccounted money paying some commission to the entry operator under the grab of share application money taking advantage of some judicial decisions. In the era of high level of professionalism with degredation of ethics, circumstancial evidences have found due importance even in criminal proceedings and hence in the Income Tax proceedings, at the appellate stage it is difficult to do away with it. All the documents filed by the assessee only points towards identity of the creditors. He, therefore, prayed to dismiss the appeal.
6. We have carefully gone through the record, the documents and decisions relied upon by either side. In so far as the challenge of the assessee as to the legality and validity of the reopening is concerned, assessee is placing reliance on the decisions reported in G&G Pharma India Ltd. (Del. High Court) (supra), N.C. Cables 8 ITA No.450/Del/2014 Ltd. (supra) and Meenakshi Overseas Pvt. Ltd. (supra). He also placed reliance on the decisions reported in Signature Hotels Pvt. Ltd. vs. ITO 338 ITR 51 (Del), Sarthak Securities Co. Pvt. Ltd. vs. ITO (2010) 195 Taxman 262 (Del), CIT vs. Kamdhenu Steels & Alloys Ltd. (2012) 119 Taxmann.com 26 (Del.). As could be seen from these decisions, it is consistently held that the reopening based on the information furnished by the Directorate of Investigation and the AO without making any further Investigation on his own, recording the reasons to believe that income escaped assessment are bad. In fact in Pr. CIT vs. M/s N.C. Cables Ltd. (supra) above vide paragraph no. 10 the Hon'ble High Court extracted the reasons which are as follows:
"10. As far as the first issue with respect to the approval granted to reopen the assessment under Section 147/148 of the Act is concerned, the relevant noting is as follows:-
"Reasons for issuing notice u/s 148 of the Act in the case of M/s N. C. Cables Limited, for the A. Y. 2001-02-reg. Information has been received from the Investigation Wing of the Income Tax Department that the above named assessee is a beneficiary of accommodation entries received from certain established entry operators identified by the Wing during the period laundering for the beneficiaries and on the basis of investigation carried out and evidences collected, a report has been forwarded. I have perused the information contained in the report and the evidences gathered. The report provides details of the modus oparandi of the 'money laundering scam' and explain how the unaccounted money of the beneficiaries are ploughed back in its books of account in the form of bogus 9 ITA No.450/Del/2014 share capital/capital gains etc. after routing the same through the bank account (s) of the entry operators. Entry operators wereidentified after thorough investigation on the basis of definitive analysis of their identity, creditworthiness and the source of the money ultimately received by the beneficiaries. These entry operators are found to be mostly absconding after the unearthinq of the 'Money Laundering Scam' leaving the said money at the disposal of the beneficiaries without any associated cost or liability. In the instant case, the assessee is found to be the beneficiary of accommodation entry from such entry operators as per the following specific details of transaction:-
Entry Beneficiary's Amount Rs. Instrument Entry giving Account no.
Operator Bank No. by which bank from which
entry taken entry was
and date given
Mahesh Garg - 800480 30.11.2000 SBP-DG 4507
Performance - 700420 13.11.2000 SBP-DG 4281
Trading &
Inv.
Chintpurni - 900540 22.11.2000 SBP-DG 50058
Credits
Subhash - 500300 23.11.2000 SBP-DG 4544
Chander
Singhal
Kuldeep - 500500 21546 Innovative 239
Textiles P. 24.03.2001 Wazipur
ltd.
Sweta Stone - 500500 23510 -do- 1200259-
P. Ltd. 24.03.2001 CA
Division - 500500 33612 -do- 225
Trading P. 24.3.2001
Ltd.
During the course of the proceedings u/s 148 for the same assessment year, which Was dropped on the technical ground that proper sanction was not obtained, it was noticed that there are other receipts also from the identified entry operators. Information about those entries was not available in the data received from the Investigation Wing.
Nevertheless they also fall within the ambit of section 68 of the Act. The assessee has received unexplained sums from the entry operators as per the above details as per information available with the undersigned. As explained above the identity, creditworthiness and genuineness of transactions with the persons found to be entry operators cannot be established. I therefore have reasons to believe that on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for 10 ITA No.450/Del/2014 assessment for above AY the income chargeable to tax to the extent of accommodation entry mentioned above, has escaped assessment within the meaning of S.147 of the Act.
Since four years has been expired from the end of the relevant year, and assessment u/s 143(3) of the Act was made in the case of the assessee for the said A ~ the reasons recorded above for the purpose of reopening of assessment is put up for kind satisfaction of the CIT, Delhi t1, New Delhi in terms of the Proviso to Section 151 of the Act.
Sd/- (ITO) Ward 13(1).
The ACIT, Range 13, New Delhi For kind approval of CIT-V, New Delhi CIT-V, Delhi:
"Approved" Sd/-"
7. In the case on hand also the contention of the Revenue is that the assessee issued cash and received cheques from one Sh. Tarun Goyal, an entry operator. It is only on the basis of information furnished by the Directorate of Investigation Unit AO found the satisfaction that the income of Rs. 20,40,000/- had escaped the assessment due to the reason of failure on the part of the assessee to prove not only the identity of share applicants but also the capacity of such applicants and the genuineness of the transaction. The Hon'ble Jurisdictional High Court in Sarthak Securities Pvt. Ltd. vs. ITO (2010) 195 Taxman 262 (Del), Signature Hotels Pvt. Ltd. vs. ITO 338 ITR 51 (Del), CIT vs. SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del), Pr. CIT vs. G&G 11 ITA No.450/Del/2014 Pharma India Ltd. (ITA No. 545/D/2015) (Delhi High Court), ITO vs. N.C. Cables Ltd. (Delhi ITAT) - Judgment dated 22.10.2014 and Pr. CIT vs. Meenakshi Overseas Pvt. Ltd. (2017) (S) TMI 1428 held that the reopening of the assessment without the AO independently undertaking the exercise of examination of facts is bad under law.
8. The Jurisdiction Delhi High Court in the case of Pr. CIT vs. Meenakshi Overseas Pvt. Ltd. (2017)(S) TMI 1428 has held that reopening u/s 147/148 was not justified where reasons were recorded merely on the basis of information received from investigation using and without independent application of mind by the AO. The Hon'ble Court held that it was indeed a "borrowed satisfaction" and reopening was not justified.
9. Now coming to the second limb of challenge made by the assessee to the effect that the reassessment proceedings initiated are bad in as much as the approval/sanction by Addl. CIT is without recording satisfaction and the same is not in accordance with the requirements of Section 151 of the Act, Ld. AR brought it to our notice that vide sl. no. 11 the Addl. CIT, Range 6, New Delhi 12 ITA No.450/Del/2014 recorded that "Yes, I am satisfied". On this aspect Ld. AR placed reliance on the decisions reported in Chhugamal Rajpal vs. S.P. Chaliha (1971) 79 ITR 602 (SC), Central India Electric Supply Co. Ltd. vs. ITO (2011) 10 taxmann.com 169 (Delhi), ITO vs. N.C. Cables Ltd. (Delhi ITAT) - Judgment dated 22.10.2014, ITO vs. M.B. Jewellers (P) Ltd. (Delhi ITAT) judgment dated 14.11.2014, Amar Lal Bajaj vs. ACIT (2013) 37 Taxmann.com 7 (Mum) (Trib), CIT vs. M/s S. Goyanka Lime and Chemicals Ltd. 2015 (5) TMI 217 and Pr. Commissioner of Income Tax vs. N.C. Cables Ltd. (ITA No. 335/2015), for the principle that where the authority to grant/sanction merely recorded "Yes, I am satisfied", such an approval/sanction is not sustainable.
10. We have gone through the decisions relied upon by the Ld. AR. In the decision reported in CIT vs. M/s S. Goyanka Lime and Chemicals Ltd. (supra) it is held by the Hon'ble Madhya Pradesh High Court as follows:
"7. We have considered the rival contentions and we find that while according sanction, the Joint Commissioner, Income Tax has only recorded so "Yes, I am satisfied". In the case of Arjun Singh (supra), the same question has been considered by a Coordinate Bench of this Court and the following principles are laid down" -13 ITA No.450/Del/2014
"The Commissioner acted, of course, mechanically in order to discharge his statutory obligation properly in the matter of recording sanction as he merely wrote on the format "Yes, I am satisfied" which indicates as if he was to sign only on the dotted line. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which also goes to indicate that the Commissioner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material."
11. This decision of the Madhya Pradesh High Court was challenged by the Revenue before the Hon'ble Supreme Court by way of the Special Leave Petition and the Hon'ble Supreme Court was pleased to dismiss the Special Leave Petition vide order reported in (2015) 64 taxmann.com 313 (SC).
12. In the circumstances surrounding this case, in view of the decisions referred to above, we are of the considered opinion that the decisions reported in Sarthak Securities Pvt. Ltd. (supra), Signature Hotels (supra), Kamdhenu Steels & Alloys Ltd. (2012) 19 Taxman.com 26 (Del) & G&G Pharma India Ltd. (supra) are directly applicable to the facts of the case to hold that the reasons recorded by the AO in this matter solely basing on the information received from the Directorate of Investigation without any independent exercise of mental process cannot be construed as reasons to believe and the consequent proceedings of reopening 14 ITA No.450/Del/2014 are bad under law. Further, the approval/sanction of the Addl. CIT, Range 6, New Delhi is also not in accordance with the requirements of Section 151 of the Act, as is held in M/s S. Goyanka Lime and Chemicals Ltd. (supra) and this also vitiates the proceedings. For these reasons, we hold that the reopening proceedings are bad under law and are liable to be quashed. Since, we are quashed the proceedings on the questions of law, we do not deem it necessary to adjudicate the merits of additions made in this matter. For these reasons, we hold that the orders of the authorities below cannot be sustained and consequently, they are liable to be quashed. We do so.
12. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 24.10.2017 Sd/- Sd/-
(N.K. SAINI) (K.N. CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 24.10.2017 *Kavita Arora Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT 15 ITA No.450/Del/2014 TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI