Income Tax Appellate Tribunal - Delhi
M/S. Ashima Securities (P) Ltd., New ... vs Ito, New Delhi on 29 September, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "A", NEW DELHI
BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER
AND
SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
ITA Nos.3400 & 3401/Del/2013
Assessment Years : 2002-03 & 2003-04
Ashima Securities (P) Ltd., ITO, Ward- 2(2),
220/1A, Padam Nagar, New Delhi.
Vs.
Kishan Ganj, New Delhi.
PAN : AAJCA4297M
(Appellant) (Respondent)
Assessee by : Shri Rajeev Saxena, Adv.
Shri Sankalp A. Sharma, Adv.
Department by : Shri R. C. Danday, Sr.DR
Date of hearing : 31-08-2017
Date of pronouncement : 29-09-2017
ORDER
PER R. K. PANDA, AM :
The above two appeals filed by the assessee are directed against the common order dated 18.03.2013 of CIT(A)-V, New Delhi relating to assessment years 2002-03 and 2003-04 respectively. Since identical grounds have been taken by the assessee in both the appeals, therefore, for the sake of convenience these were heard together and are being disposed of by this common order.
ITA No.3400/Del/2013 (A.Y. 2002-03) :
2. Facts of the case, in brief, are that the assessee is a company engaged in the business of Parking Contracts. It filed its return of income on 30.10.2002 2 ITA Nos.3400 & 3401/Del/2013 declaring loss of Rs.1,86,423/-. Information was received from the Directorate of Income-tax (Investigation), New Delhi on the basis of which and on the basis of credible information, a belief was formed that the assessee company has not disclosed investment made by way of renovation of Cup & Soccer Restaurant, Minto Road, New Delhi and New Shahnai Banquet Hall Opp. L.N.J.P. Hospital, New Delhi. Accordingly, the Assessing Officer issued notice u/s 148 of the I.T. Act by recording the following reasons :-
"The Directorate of Investigation- Unit-IV(I), New Delhi, regarding had forwarded report in the case of M/s Ashima Securities Pvt. Ltd. In the said report it was mention that information was received from Addl. Commissioner (Revenue), M.C.D. Delhi regarding the above named assessee namely M/s Ashima Securities Pvt. Ltd., which was given CUP & SOCCER RESTURANT a Minto Road on a five years lease on a monthly rental of Rs.4.38 Lacs from November 2001. According to the information received, the assessee company had claimed to have spent Rs.65 Lacs on the renovation and construction of the premises. It was further mentioned in the letter that similarly, this group of assessee had also taken another restaurant "New Shahnai Banquet Hall" situated opposite L.N.J.P. Hospital for five years lease on a monthly rental of Rs.4.21 Lacs and had claimed to have spent another Rs45 Lacs on its renovation.
In view of the above information received the source of the investment made by the assessee in assets leased to it, needs to be investigated. Also, since no details for investment were filed by the assessee before the DIT (Inv.). I have reasons to believe that the investment made by the assessee for which no details were filed has escaped assessment, as per the provisions of section 147(a), (b) & (c) of the Income Tax Act, 1961.
Sd/-
Dated : 20 March, 2009 (Sarojini Xess)
Income Tax Officer
Ward 2(2), New Delhi.
3. In response to the notice u/s 148, the assessee did not file any return but filed a letter dated 27.04.2009 providing a copy of the original return filed u/s 139(1). The Assessing Officer subsequently issued notice u/s 142(1) of the I.T. Act. During the course of assessment proceedings, he noted that the assessee company has admitted having incurred expenditure of Rs.65,00,000/- on 3 ITA Nos.3400 & 3401/Del/2013 renovation of the restaurant. The possession of the restaurant was taken over by the assessee on 28.02.2002 as admitted by the assessee. According to the Assessing Officer, entire expenditure of Rs.65,00,000/- cannot be said to have been incurred in one month time. Further, the assessee has not given bifurcation of the expenditure so incurred. He, therefore, estimated that 10% of the expenditure to have been incurred during the previous year 2001-02 relevant for the assessment year 2002-03 and balance 90% of the expenditure as incurred in assessment year 2002-03 relevant for assessment year 2003-04. Since the assessee has not provided the names and addresses of the material suppliers and the contractors who undertook the work and since no confirmation in support of the versions is brought on record, the Assessing Officer made addition of Rs.6,50,000/- by invoking the provisions of section 69C of the I.T. Act.
Similarly, the Assessing Officer made addition of Rs.22,76,000/- u/s 68 of the I.T. Act since the assessee did not provide the names, addresses and confirmation of the subscribers towards increase in share application money.
Similarly, the Assessing Officer also made addition of Rs.22,71,000/- u/s 68 of the I.T. Act on account of non-submissions of the names, addresses and confirmation of the unsecured loan creditors. Thus, the Assessing Officer made total addition of Rs.56,97,000/- to the total income of the assessee.4
ITA Nos.3400 & 3401/Del/2013
4. In appeal, the assessee challenged the validity of the re-assessment proceedings as well as the additions on merit. However, ld. CIT(A) rejected both the issues raised before him.
5. Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before us by raising following grounds :-
"1. That the ld C.I.T.(Appeals) has erred both on facts and in law in mechanically upholding the reassessment proceedings u/s 147 r/w section 148 of the I.T. Act failing to appreciate that the conditions laid down for a valid assumption of jurisdiction u/s 147 had not been fulfilled before taking recourse to such proceedings. The finding that the AO has followed due procedure under the law is wholly incorrect and wrong. 1.2 That the Id C.I.T.(Appeals) has failed to appreciate that the assessee had not been provided with a copy of the reasons recorded till the completion of assessment proceedings.
1.3 That the reassessment proceedings as initiated are wholly illegal and without jurisdiction as the requisite approval has been granted in a mechanical manner without application of mind.
1.4 That the Id C.I.T.(Appeals) has failed to appreciate that there was no cogent material on record to form a reason to believe that assessee's income for the assessment year under consideration has escaped assessment. The information provided by MCD Authorities that assessee had incurred an expenditure of Rs.65 lakh on renovation of Cup-n-Saucer restaurant, was wholly vague and thus un-reliable for the purposes of assuming a valid jurisdiction to initiate proceedings u/s 147 of the Act. In any case, such information was wholly inadmissible as the same had never been confronted to the assessee.
2. Without prejudice to the above, the Id C.I.T.(Appeals) has grossly erred in upholding the addition of Rs.6,50,000/- made by the AO on account of alleged expenditure incurred on renovation of Cup-n-Saucer restaurant during the instant year. The Id C.I.T.(Appeals) has erroneously disregarded assessee's submission that no expenditure had been incurred on renovation of restaurant. 2.1 That the finding of the ld C.I.T.(Appeals) that the assessee had admitted of having incurred expenditure of Rs.65 lakh is wholly wrong in as much as the said statement had wrongly been made by assessee's AR and even without obtaining assessee's instruction. Any such admission by assessee's AR is not corroborated with any evidence and on the contrary the books of account maintained by the assessee, prove it beyond doubt that no such expenditure had been incurred.
3. That the Id C.I.T.(Appeals) has erred both in law and on facts in upholding the addition of Rs.27,71,000/- on account of alleged unexplained unsecured loans. No valid reason or basis has been given for upholding the impugned addition and the ld C.I.T.(Appeals) has failed to appreciate the addition had been made without granting to the assessee a fair and proper opportunity.
4. That the ld C.I.T.(Appeals) has erred in law and on facts in upholding the addition of Rs.22,76,000/- on account of alleged unexplained share capital on the ground that the assessee company did not provide the names, addresses and 5 ITA Nos.3400 & 3401/Del/2013 confirmation of the subscribers. No valid reason or basis has been given for upholding the impugned addition and the ld C.I.T.(Appeals) has failed to appreciate the addition had been made without granting to the assessee a fair and proper opportunity.
5. That the ld C.I.T.(Appeals) has grossly erred in not admitting the additional evidence sought to be furnished by the assessee u/r 46A of the LT. Rules. The finding that no reason was adduced for not producing the additional evidence before the lower authorities, is wholly incorrect and wrong and thus unsustainable. The Id C.I.T.(Appeals) has arbitrarily not admitted the fact that photocopy of seized documents by the CBI on 19/07/2008 was provided to the assessee only on 30/03/2011 of relevant documents by the CBI were provided to the assessee in March 2011.
5.1 That the finding of the ld C.I.T.(Appeals) that none of the document seized by the CBI had any bearing on the income tax matter and that the assessee deliberately did not produce the documents before the AO or before him, is wholly incorrect, wrong and un-sustainable.
6. That the ld C.I.T.(Appeals) has grossly erred passing the impugned order as well as in upholding the assessment order framed by the ld AO in violation of principles of natural justice and without granting to the assessee a fair, proper and meaningful opportunity. Even the ld. C.I.T.(Appeals) did not grant proper and reasonable opportunity of being heard to present the case in a judicious manner. The ld C.I.T.(Appeals) has failed to appreciate that the assessee was prevented with a sufficient and reasonable cause in not making necessary submissions in reply to the remand report because its AR namely, Mr. G.R. Agnihotri was hospitalized and ultimately expired.
It is, therefore, prayed that the impugned order passed by the ld C.I.T.(Appeals) be set- aside and the reassessment proceedings as initiated be held as illegal and without jurisdiction. In any case, the addition as sustained be deleted or in the interest of justice, the matter may kindly be restored back to the AO for fresh adjudication."
6. Ld. counsel for the assessee at the outset drew the attention of the Bench to the reasons recorded by the Assessing Officer and submitted that the Assessing Officer has reopened the assessment to make investigation of the investments made by the Assessing Officer on assets leased to it. Referring to the decision of Hon'ble Supreme Court in the case of ChhugamalRajpal vs. S.P. Chaliha reported in 79 ITR 603 and the following decisions : (i) Madhya Pradesh Industries Ltd. vs. ITO reported in 57 ITR 637 (SC); (ii) Ranbaxy Laboratories Ltd. vs. CIT reported in 336 ITR 136 (Del); (iii) Vipan Khanna vs. 6 ITA Nos.3400 & 3401/Del/2013 CIT reported in 255 ITR 220 (P&H) and (iv) Travancore Cements Ltd. vs. ACIT reported in 305 ITR 170 (Kerla), he submitted that the provisions of section 147 cannot be resorted to only to verify or to make further enquiry.
7. Referring to the decision of Hon'ble Bombay High Court in the case of Nivi Trading Ltd. vs. Union of India reported in 375 ITR 308, he submitted that the Hon'ble High Court in the said decision has held that where the assessee had shown gift of shares to a company, merely because assessee had been called upon by Assessing Officer for verification of value of shares in terms of section 47(iii), it would not enable revenue to resort to section 147 of the I.T. Act.
8. Referring to the decision of Hon'ble Gujarat High Court in the case of Krupesh Ghanshyambhai Thakkar vs. DCIT reported in 77 taxmann.com 293, he submitted that the Hon'ble High Court in the said decision has held that where assessee explained that amounts transferred many times among group concerns were required for banking purposes and capital investment in shares were duly recorded in books, reopening could not be sustained when the Assessing Officer had no tangible material.
9. Referring to the following decisions, he submitted that no proceedings u/s 147 can be initiated merely on the basis of the report of the Investigation Wing :-
I. CIT vs. M/S. Indo Arab Air Services [2016] 283 CTR 92 (Delhi) II. Signature Hotels P. Ltd. Vs. Income Tax Officer reported in [2011] 338 ITR 51, III. Commissioner of Income Tax versus SFIL Stock Broking Limited, reported in [2010] 325 ITR 285 (Delhi) IV. Sarthak Securities Company Private Limited versus Income Tax Officer, reported in 329 ITR 110 (Delhi), 7 ITA Nos.3400 & 3401/Del/2013 V. PCIT vs. ShriGovindKripa Builders P. Ltd (ITA 486/2015 dated 04.08.2015) VI. CIT vs. Ashian needles pvt.LtD. (ITA 226/2015 dated 24.08.2015) HC (Delhi) VII. CIT Vs. Insecticides (India) Ltd. 357 ITR 330 (Delhi) VIII. 299 ITR 383 (Del) CIT vs Atul Jain dated 23.5.2007 IX. 311 ITR 38 (P&H) CIT vs. PramjitKaur X. ITA No. 1395/2008 (Del) Smt. MeeraKapoor vs. CIT Xl. 357 ITR 24 (Del) CIT vs. Suren International (P) Ltd.
XII. Commissioner of Income-tax v. Multiplex Trading & Industrial Co. Ltd. [2015] 378 ITR 351 (Delhi) XIII. M/s Laureate Educational Vs. Income Tax Officer (ITA No.1945/Del/2012 Assessment Year: 2004-05) dated 31.12.2013
10. Referring to the recent decision of Hon'ble Delhi High Court in the case of Pr.CIT vs. RMG Polyvinyl (I) Ltd. reported in 83 taxmann.com 348, he submitted that the Hon'ble High Court in the said decision has held that where information was received from investigation wing that assessee was beneficiary of accommodation entries but no further inquiry was undertaken by Assessing Officer, said information could not be said to be tangible material per se and, thus, reassessment on said basis was not justified. Hon'ble High Court while deciding the issue has relied on its earlier decision in the case of Pr.CIT vs. Meenakshi Overseas (P.) Ltd. reported in 395 ITR 677. He accordingly submitted that the reassessment proceedings initiated by the Assessing Officer and upheld by the CIT(A) should be held as void ab initio.
11. Ld. DR on the other hand heavily relied on the order of the CIT(A) upholding the validity of the reassessment proceedings. Referring to para 18 of the decision of Hon'ble Bombay High Court in the case of Nivi Trading Ltd.
(supra), he drew the attention of the Bench to the following paragraph :-
"18. The Hon'ble Supreme Court thus held that section 147 authorises and permits the Assessing Officer to assess or reassess the income chargeable to tax, if he has 8 ITA Nos.3400 & 3401/Del/2013 reason to believe that income chargeable to tax has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. Thus, at that stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issuance of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. The substantive satisfaction in that case of the Assessing Officer was therefore wrongly interfered with by the Gujarat High Court is the view taken by the Hon'ble Supreme Court. All these legal principles are undisputed. They go to show, as Mr. Gupta emphasizes, that there should be a reason to believe that in the relevant assessment year income chargeable to tax has escaped assessment. We are of the view that in the present case, the reasons recorded fall short of this test."
12. He accordingly submitted the order of the CIT(A) sustaining the validity of the reassessment proceedings should be upheld.
13. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer on the basis of information received from the Directorate of Income-tax (Investigation), New Delhi reopened the assessment u/s 147 to investigate the source of investment made by the assessee in assets leased to it. We find the ld. CIT(A) while deciding the appeal dismissed the ground raised by the assessee challenging the validity of the reassessment proceedings. Ld. counsel for the assessee made two-fold submissions. The first plank of his argument is that the provisions of section 147 of the I.T. Act cannot be resorted only to verify or to make further enquiry. 9
ITA Nos.3400 & 3401/Del/2013 The second plank of his argument is that no proceedings u/s 147 can be initiated merely on the basis of the report of the Investigation Wing. So far as the first plank of his argument that the reassessment proceedings cannot be initiated to make further enquiries is concerned, we find the Hon'ble Bombay High Court in the case of Nivi Trading Ltd. (supra) has held that where the assessee had shown gift of shares to a company, merely because the assessee had been called upon by the Assessing Officer for verification of value of shares in terms of section 47(iii), it would not enable the Revenue to resort to section 147 of the I.T. Act. We find the Hon'ble Gujarat High Court in the case of Krupesh Ghanshyambhai Thakkar (supra) has held that the reassessment cannot be initiated for the purposes of deep verification. The relevant observations of the Hon'ble High Court from para 11 to 14 of the order read as under :-
"11. At the outset, it is required to be noted that by the impugned notice, the assessment for AY 2009-2010 is sought to be reopened in exercise of power under Section 147 of the I.T Act. The reasons recorded to reopen the assessment are already produced hereinabove. Thus, as per the reasons recorded, the notice has been issued and assessment is sought to be reopened for deep verification of the claims. Even in the order disposing of the objections, it has been specifically stated that to verify whether all the criteria are met by the said transaction of Rs. 50 lakhs routed through the group and also to verify the claim of having recorded these transactions in the regular books of account, notice under Section 148 has been issued. Even with respect to investment in shares of M/s. Rushil Decor, it has been submitted that whether the investment in shares of M/s. Rushil Decor were acquired from the capital of the assessee and the same is duly recorded in the books of account, needs to be verified and for that purpose, the assessment for A.Y 2009-2010 is sought to be reopened.
12. In case of Inductotherm [India] P. Limited v. M. Gopalan, Deputy Commissioner of Income-Tax [Supra], Division Bench of this Court has observed that for a mere verification of the claim, the power of reopening of assessment could not be exercised. It is further observed that the Assessing Officer under the guise of power to reopen an assessment, cannot seek to undertake a fishing or roving inquiry and seek to verify the claims, as if it were a scrutiny assessment.10
ITA Nos.3400 & 3401/Del/2013 12.1 Similar view has been expressed by the Division Bench in case of Deep Recycling Industries v. Deputy Commissioner of Income Tax - Circle 2 [Supra] wherein it has been held and observed that for mere scrutiny, reopening of the assessment would not be permissible. It is further observed that the reopening of the assessment could be made if the Assessing Officer had formed a belief that income chargeable to tax had escaped assessment. The Court has further observed that in order to do so, the Assessing Officer must have some tangible material having live link with the escapement of the income on the basis of which he can form a bona fide belief of escapement of income chargeable to tax. It has also been observed that reopening cannot be resorted to for fishing or roving inquiry on mere suspicion that income chargeable to tax may have escaped assessment.
13. Applying the aforesaid two decisions to the facts of the present two cases on hand and the reasons recorded to reopen the assessment, we are of the opinion that under the guise of reopening of the assessment, the Assessing Officer wants to have a roving inquiry; as observed hereinabove. Even as per the Assessing Officer in the reasons recorded has specifically mentioned that for the purpose of verification/ deep verification of the claim, it is necessary to reopen the assessment. Under the circumstances, it cannot be said that the Assessing Officer had any tangible material to form an opinion that the income chargeable to tax has escaped the assessment. Under the circumstances, the impugned action of reopening of the assessment in exercise of power under Section 148 of the I.T Act for the reasons recorded hereinabove cannot be sustained.
14. Resultantly, both these writ petitions succeed. Impugned Notice issued by the Assessing Officer under Section 148 of the Income-tax Act, 1961 in each case is hereby quashed and set-aside."
14. Similar view has been taken by various other High Courts relied upon by the ld. counsel for the assessee. Therefore, we hold that reassessment proceedings cannot be initiated for the purposes of making verification in absence of any valuable material available with the Assessing Officer to show that the income has escaped assessment. In view of the above discussion, we hold that the re-assessment proceedings initiated by the Assessing Officer and upheld by the CIT(A) are not justified. Since the assessee succeeds on this preliminary issue, the various grounds on merit are not being adjudicated being academic in nature. The appeal filed by the assessee is accordingly allowed. 11
ITA Nos.3400 & 3401/Del/2013 ITA No.3401/Del/2013 (A.Y. 2003-04) :
15. After hearing both the sides, we find that the grounds raised by the assessee in the above appeal are identical to grounds raised by the assessee in ITA No.3400/Del/2013 for assessment year 2002-03. We have already decided the issue and the grounds raised by the assessee have been allowed. Following the same reasoning, the grounds raised by the assessee in the above appeal are also allowed.
16. Resultantly, both the appeals filed by the assessee are allowed.
Order pronounced in the open on this 29th day of September, 2017.
Sd/- Sd/-
(SUDHANSHU SRIVASTAVA) (R. K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 29-09-2017.
Sujeet
Copy of order to: -
1) The Appellant
2) The Respondent
3) The CIT
4) The CIT(A)
5) The DR, I.T.A.T., New Delhi
By Order
//True Copy//
Assistant Registrar
ITAT, New Delhi