Income Tax Appellate Tribunal - Delhi
Harish Kumar Chhabra , New Delhi vs Department Of Income Tax on 4 January, 2016
ITA NOS. 2490 & 2999/Del/2013
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "C", NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
AND
SHRI O.P. KANT, ACCOUNTANT MEMBER
I.T.A. No. 2490/DEL/2013
A.Y. : 2004-05
SH. HARISH KUMAR CHHABRA INCOME TAX OFFICER,
C/O M/S RRA TAXINDIA VS. WARD 33(3),
D-28, SOUTH EXTENSION, NEW DELHI
PART-I, NEW DELHI - 49
(PAN: AACPC8169J)
(APPELLANT) (RESPONDENT)
AND
I.T.A. No. 2999/DEL/2013
A.Y. : 2004-05
INCOME TAX OFFICER, SH. HARISH KUMAR
WARD 33(3), VS. CHHABRA
ROOM NO. 1609, E-2, 57-F, PLOT NO. 9 GODDIA
CIVIC CENTRE ROAD,
NEW DELHI ANAND PARBAT, NEW
DELHI - 8
(PAN: AACPC8169J)
(APPELLANT) (RESPONDENT)
Assessee by : Sh. Tarun Kumar, Adv. &
Sh. Abhishek Anand, Adv.
Department by : Sh. T. Vasanthan, Sr. DR
Date of Hearing : 14-12-2015
Date of Order : 04-1-2016
ORDER
PER H.S. SIDHU : JM These are the Cross Appeals filed by the Assessee and Revenue against the impugned Order dated 27.2.2013 passed by the Ld. CIT(A)-XXVI, New Delhi relevant to assessment year 2004-05. 1
ITA NOS. 2490 & 2999/Del/2013
2. The grounds raised in the Assessee's Appeal No. 2490/Del/2013 read as under:-
"1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned order uls 147/143(3) and that too without communicating the reasons recorded as per law and without obtaining the valid sanction as per law and without complying with other mandatory conditions as envisaged u/s 147 to 151 of Income Tax Act, 1961.
2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making aggregate addition of Rs.9,36,328/- (as per details given in the assessment order) on 'account of alleged unexplained entries in bank account and that too by recording incorrect facts and findings and without considering the submissions/evidences of the assessee.
3. That in any case and in any view of the matter, impugned addition and impugned assessment order are bad in law, illegal, unjustified, barred by limitation, contrary to facts & law and based upon recording of incorrect facts and finding, without giving adequate opportunity of hearing, in violation of principles of natural justice and the same deserves to be quashed.
4. That the appellant craves to leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other."2
ITA NOS. 2490 & 2999/Del/2013
3. The grounds raised in the Revenue's Appeal No. 2999/Del/2013 read as under:-
"The CIT(A) has erred in deleting the addition of Rs. 10,00,000/- made by AO u/s. 68 of the I.T. Act, 1961 on account of accommodation entries without appreciating the inquiries conducted by the Investigation Wing of the Department."
4. The brief facts of the case are that the assessee being individual filed his return of income on 31.10.2004 declaring a total income of Rs.4,56,440/-. This return was processed u/s 143(1) of the Income- tax Act, 1961. Subsequently information was received by the Assessing Officer from Directorate of Income-tax (Investigation) New Delhi that the assessee had received the following accommodation entries from one Sh. Satish Kumar Sharma during the year under consideration.
Bank of Branch of the Instrument Amount Date Credit entry coming the Bank No. from the account of assessee BOR New Rohtak Road - 25,00,000 5.8.2003 Satish Kumar Sharma BOR New Rohtak Road - 25,00,000 5.8.2003 Satish Kumar Sharma BOR New Rohtak Road - 25,00,000 5.8.2003 Satish Kumar Sharma BOR New Rohtak Road - 25,00,000 5.8.2003 Satish Kumar Sharma
4.1 On the basis of the above information, proceedings u/s 147 were initiated and notice dated 29.3.2011 u/s 148 was issued and served upon the assessee. In response, the AR of the assessee filed letter dated 21.4.2011 stating as under:
"With reference to your above mentioned notice, we hereby submit that the return filed by the assessee for the assessment year 2004-05, u/s 139 of Income-tax Act vide receipt no. 0030401325 3 ITA NOS. 2490 & 2999/Del/2013 dated 31.10.2004 may be treated as return filed in response to your above mentioned notice.
However, these proceedings are bad in law, we are filing this return under protest. The notice is also invalid. It is further requested to please provide the copy of the reasons recorded along with adverse material relied upon in the reasons if any.
The photocopy of the acknowledgment of the return filed by the assessee for the same is enclosed for your perusal. We are enclosing herewith power of attorney duly signed by the assessee.
Assuring you of our best co-operation and services always."
4.2 Thereafter, the Assessing Officer asked the assessee to explain the source of credit entries of Rs.10,00,000/- in his bank account. In response to the same, the assessee filed a copy of his bank statement with ICICI Sank, New Rohtak Road, New Delhi wherein the credit entries aggregating to Rs.10,00,000/- were reflected. On the basis of this bank statement, the Assessing Officer again besides asking the assessee to explain the credit entries of Rs.10,00,000/-, also required the assessee to explain all the other credit entries in the bank accounts and simultaneously also asked the assessee to explain why all the credit entries appearing in his bank account be not added in his returned income u/s 68 as income from undisclosed sources for the assessment year under consideration.
4.3 In response, the AR of the assessee has filed the reply vide letter dated 14.11.2011. After considering the reply of the AR, the AO observed that as per the information of the DIT(Inv.) since Sh. Satish Kumar Sharma was involved in giving bogus accommodation entries, the receipts of Rs. 10,00,000/- from him cannot be held to be reliable and genuine. He, accordingly, added the amount of credit entries 4 ITA NOS. 2490 & 2999/Del/2013 aggregating to Rs. 10,00,000/- to the income of the assessee u/s. 68 of the Income Tax Act, 1961.
5. Against the Order of the Ld. AO, assessee appealed before the Ld. CIT(A), challenging the validity of reassessment as well as the addition of Rs. 10,00,000/-. Ld. CIT(A) who vide impugned order dated 27.2.2013 has partly allowed the appeal of the assesseee thereby deleting the addition in dispute and rejected the ground of challenging the validity of reopening.
6. Aggrieved with the aforesaid order of the Ld. CIT(A), Assessee as well as Revenue are in Cross Appeals before us.
7. Ld. Counsel for the assessee has only argued the ground no. 1 stating that Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in framing the impugned order u/s. 147/143(3) and that too without communicating the reasons recorded as per law and without obtaining the valid sanction as per law and without complying with other mandatory conditions as envisaged u/s. 147 to 151 of the Income Tax Act, 1961. He further submitted that the present case is squarely covered by the Hon'ble High Court Decision dated 8.10.2015 passed in ITA No. 545/2015 in the case of Pr. CIT-4 vs. G&G Pharma India Ltd., wherein the Tribunal decision dated 9.1.2015 has been followed. In this behalf, he filed the copy of the order dated 8.10.2015 of the Hon'ble High Court of Delhi in Pr. CIT vs. G&G Pharma India Ltd. Therefore, he requested that by following the decision in the case of Pr. CIT vs. G&G Pharma India Ltd., the ground no. 1 raised by the Assessee in the present appeal may be allowed.
8. On the contrary, Ld. DR relied upon the order passed by the CIT(A) on issue of validity of reopening and stated that Ld. CIT(A) has rightly upheld the action of the AO of reopening. He further stated 5 ITA NOS. 2490 & 2999/Del/2013 that the case law relied upon by the Ld. Counsel for the assessee in the case of Pr. CIT vs. G&G Pharma India Pvt. Ltd. is distinguishable on the facts of the case in hand. He further stated that in the case of G&G Pharma (Supra), assessment was completed u/s. 143(3) of the I.T. Act whereas in the assessee's own case it was processed u/s. 143(1) of the I.T. Act and therefore, the AO has rightly reopened the case of the assessee by issuing the notice u/s. 148 of the I.T. Act without making any inquiry of the material supplied to him. In support of his contention, he relied upon the following case laws:-
- Raymond Woolen Mills Ltd. vs. ITO & Ors. [236 ITR 34] - Hon'ble Supreme Court of India
- Contel Medicare Systems P. Ltd. vs. CIT [349 ITR 649] - Hon'ble Delhi High Court
9. We have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities and the case laws cited by the assessee's counsel as well as Departmental Representative on the issue in dispute. For the sake of clarity, we would like to discuss the reasons for initiation of proceedings u/s. 147 and for obtaining the approval of the Addl. CIT/CIT as under:-
"The Directorate of Income Tax (Investigation), New Delhi has carried out investigation in the cases of certain group of persons who were engaged in providing accommodation 6 ITA NOS. 2490 & 2999/Del/2013 entries. These enquiries were initiated to probe into some bank accounts which were used by these persons to issue cheques to entry seekers or beneficiaries against cash paid by them to the entry providers. Such a camouflaged transaction came to light during the course of survey in the case of M/s Gurcharan Jewellers whose proprietor Sh.
Ashok Kumar Chaudhary had admitted to have taken cheques under the garb of gifts after giving cash to the entry operator. Probe was initiated into the accounts which were used to provide these accommodation entries.
These investigations led to revealing of many more bank accounts which were being used by the entry operators for the purpose of giving bogus accommodation entries.
Extensive enquiries were-made in a number of such bank accounts, the account holders, the persons operating these accounts and the persons for whom such account - holders were working. These enquiries revealed inter alia the following:
Entries were being broadly taken for two purposes:
1. To plough back unaccounted black money for the purpose of business or for personal needs such as purchase 7 ITA NOS. 2490 & 2999/Del/2013 of assets etc., in the form of gifts, share application money, loans etc.
2. To inflate expenses in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes.
The assessee who had unaccounted money (called as entry takers or beneficiaries) and wanted to introduce the same in the books of accounts without paying tax, approached another person (called as entry operator) and handed over the cash (plus commission) and took cheques/ DDs/IPOs. The cash was being deposited by the entry operator in a bank account either in his own name or/in the name of relatives/ friends or other persons hired by him for the purpose of opening bank account. In most of these bank accounts, the introducer was the main entry operator and the cash deposit slips and other instruments were filled by him. The other persons (in which the cash is deposited) or another account in which funds were transferred through clearing in two more stages. The beneficiary in turn deposited these instruments in his bank. accounts and the money came to his regular books of account in the form of 8 ITA NOS. 2490 & 2999/Del/2013 gift, share . application money, loan etc. through banking channels.
The operators gave the account holders amounts ranging from Rs. 1000 to 2000 per month. These account holders were masons, plumbers, electricians, peons, drivers etc., whose earnings are not sufficient for a living. They earned normally 3 to 5 thousands per month from their normal work and by working for the entry operators tamed extra income of 2 to 4 thousands per month. Their signatures were taken on blank gift deeds, cheque books, share application money etc. In fact, these persons signed all types of papers they were asked to sign. They were made directors of companies, partners of firms and proprietors of different Concerns solely for operation of these accounts. Actually many of them were not even aware of the tax implications etc. Their only concern was with the few thousand rupees given to them by the entry operators.
Summing up, the report as a result of these extensive enquiries carried out by the DIT(Inv.), New Delhi has assailed genuineness of transactions, whether shown by beneficiaries as inflow of share capital / loan or receipt of gifts or consideration for sale purchase. It has also dealt a 9 ITA NOS. 2490 & 2999/Del/2013 body blow to the creditworthiness of the persons controlling the concerns who have given these credit entries/ share capital / gifts / sale consideration as they have been found to be men of no means.
In the instant case of the assessee, the following credits have been shown in the bank account.
Bank of Branch Amount Instrum Date Credit Bank a/c
the of the ent No. entry of entry
assessee Bank coming provider
from the
account
of
BOR New 25,00,000 5.8.2003 Satish 15447,
Rohtak Kumar SBBJ, NRR
Road Sharma
BOR New 25,00,000 5.8.2003 Satish 15447,
Rohtak Kumar SBBJ, NRR
Road Sharma
BOR New 25,00,000 5.8.2003 Satish 15447,
Rohtak Kumar SBBJ, NRR
Road Sharma
BOR New 25,00,000 5.8.2003 Satish 15447,
Rohtak Kumar SBBJ, NRR
Road Sharma
In view of the report received from the DIT(Inv.), New Delhi and in view of the facts narrated above it is clear that the assessee has not disclosed fully and truly all material facts necessary for its assessment for that assessment year. I have therefore, reason to believe that the sum of Rs. 10,00,000/- chargeable to tax has escaped assessment. Thus, the same is to be brought to tax under section 147/148 of the I.T. Act, 1961."
9.1 On going through the above reasons recorded by the AO, we are of the view that AO has not applied his mind so as to come to an 10 ITA NOS. 2490 & 2999/Del/2013 independent conclusion that he has reason to believe that income has escaped during the year. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. Our view is supported by the following judgments/decisions:-
(a) Pr. CIT vs. G&G Pharma India Ltd. in ITA No. 545/2015 dated 8.10.2015 of the Delhi High Court wherein the Hon'ble Court has adjudicated the issue as under:-
"12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: "I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries." The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it 11 ITA NOS. 2490 & 2999/Del/2013 would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: "it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries". In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case.
13. Mr. Sawhney took the Court through the order of the CIT(A) to show how the CIT (A) discussed the materials produced during the hearing of the appeal. The Court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT may have proceeded on the basis that the reopening of the assessment was valid, this does not satisfy the requirement of law that prior to the reopening of the assessment, the AO has to, applying his mind to the materials, conclude that he has reason to believe that income of the Assessee has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity .
14. In the circumstances, the conclusion reached by the ITAT cannot be said to be erroneous. No substantial question of law arises.
15. The appeal is dismissed."12
ITA NOS. 2490 & 2999/Del/2013
(b) Signature Hotels (P)_ Ltd. vs. ITO and another reported in 338 ITR 51 (Del) has under similar circumstances as follows:-
"For the A.Y. 2003-04, the return of income of the assessee company was accepted u/s.143(1) of the Income- tax Act, 1961 and was not selected for scrutiny. Subsequently, the Assessing Officer issued notice u/s.148 which was objected by the assessee. The Assessing Officer rejected the objections. The assessee company filed writ petition and challenged the notice and the order on objections.
The Delhi High Court allowed the writ petition and held as under:
"(i) Section 147 of the Income-tax Act, 1961, is wide but not plenary. The Assessing Officer must have 'reason to believe' that income chargeable to tax has escaped assessment. This is mandatory and the 'reason to believe' are required to be recorded in writing by the Assessing Officer.
(ii) A notice u/s.148 can be quashed if the 'belief' is not bona fide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded the reasons. There should be a link between the reasons and the evidence/material available with the Assessing Officer.
(iii) 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 F.Y. 2002-03 as stated in 13 ITA NOS. 2490 & 2999/Del/2013 the annexure. According to the information, the amount received from a company, S, was 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 escapement of income. The annexure was not a pointer and did not indicate escapement of income.
(iv) 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 the quashed."
10. In view of above, we are of the considered view that the aforesaid issue in dispute is exactly the similar and identical to the issue involved in the present appeal and is squarely covered by the aforesaid decisions of the Hon'ble High Court of Delhi in the case of G&G Pharma (supra) & Signatures Hotels (P) Ltd. (Supra). However, we note that the case laws as referred by the Ld. DR are distinguishable to the facts of the present Appeal. Hence, respectfully following the above precedents in the case of Pr. CIT-4 vs. G&G Pharma India Ltd. (Supra) and Signature Hotels (P) Ltd. vs. ITO, we decide the legal issue 14 ITA NOS. 2490 & 2999/Del/2013 in dispute in favor of the Assessee and against the Revenue and accordingly quash the reassessment proceedings and allow the ground no. 1 raised by the Assessee in its Appeal. Since we have quashed the reassessment proceedings, as aforesaid, the other issues are not being dealt with.
REVENUE'S APPEAL NO. 2999/DEL/2013
11. As the reassessment proceedings has been quashed by us as aforesaid, there is no need to adjudicate the Appeal of the Revenue. Otherwise, also, we find that the tax effect in this appeal is less than Rs.10,00,000/-, therefore, the Department's Appeal is not maintainable, in view of the Circular No. 21/2015 dated 10th December, 2015 issued vide F.No. 279/Misc. 142/2007-ITJ (Pt.) by the CBDT. In the above-said Circular the following conditions has been prescribed:-
"3. Henceforth, appeals/ SLPs shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder:
Monetary Limit S No Appeals in Income-tax matters (in Rs) 1 Before Appellate Tribunal 10,00,000/-
2 Before High Court 20,00,000/-
3 Before Supreme Court 25,00,000/-
It is clarified that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of the case.
10. This instruction will apply retrospectively to pending appeals and appeals to be filed henceforth in High Courts/ Tribunals. Pending appeals below the specified tax limits in para 3 above may be withdrawn/ not pressed. Appeals before the Supreme Court will be 15 ITA NOS. 2490 & 2999/Del/2013 governed by the instructions on this subject, operative at the time when such appeal was filed."
12. In view of the above, we dismiss this appeal filed by the Revenue being the tax effect below the prescribed limit of Rs. 10 lacs.
13. In the result, appeal of the Assessee is allowed and the appeal filed by the Revenue is dismissed.
Order pronounced in the Open Court on 04/1/2016.
Sd/- Sd/-
[O.P. KANT] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date 04/1/2016
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT
TRUE COPY By Order,
Assistant Registrar,
ITAT, Delhi Benches
16