Income Tax Appellate Tribunal - Delhi
Prabhu Finsec Pvt. Ltd., New Delhi vs Ito, Ward- 20(1), New Delhi on 28 December, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'SMC', NEW DELHI
BEFORE SH. K. N. CHARY, JUDICIAL MEMBER
AND
DR. MITHA LAL MEENA, ACCOUNTANT MEMBER
ITA NO.1221/DEL/2018
Assessm ent Year: 2008-09
Prabhu Finsec Pvt. Ltd.403, ITO
405 M G House, Com m unity Vs Ward-2 0 (1 )
Centre, W azirpur Industrial New Delhi
Area, New D e lh i-1 10052
PAN A A AC P5228J
(APPELLANT) (RESPONDENT)
Appellant by Shri Suresh Kumar Gupta, CA
Respondent by Sh. S.L. Anuragi, Sr. DR
Date of hearing: 26/12/2018
Date of Pronouncement: 28/12/2018
ORDER
Per, Dr. M. L. Meena, AM:
This appeal by the assessee is directed against the order dated 15/12/2017 of the Comm issioner of Income Tax, Appeals-XXV [In short "CIT(A)"], New Delhi for Assessm ent Year 2008-09. The assessee has raised following grounds of appeal :-
"1. The Ld. C IT(A) has erred both in la w and in facts in u pholding the validity o f rea ssessm en t p ro cee din gs and the assessm en t o rd e r ignoring the fa ct th a t the A ssessing 2 ITA NO.1221/DEL/2018 Assessment Year: 2008-09 O fficer has n o t a ssum ed ju risd ictio n u/s 147 o f the A c t w itho ut com plying with the m andatory requirem ents o f the above section.
2. The Ld. CIT(A) h as dism issed the a dd itional gro un d raised by the app ellan t during appellate p ro cee din gs challenging the validity o f the rea ssessm en t p ro cee din gs on the ground that the co m p ete n t a u th o rity has n ot applied his m ind while recording satisfaction u/s 151 o f the IT A ct and the a ssessm en t o rd e r p asse d co nse qu en t to culm ination o f such reassessm ent procee din gs nee d be se t aside.
3. The Ld. CIT(A) h as erred both on facts and in law and in the circum stances o f the case in confirm ing addition o f R s .1 0,00,000/- u/s 68 o f IT a ct on a ccou nt o f share application m on ey a ccep ted b y it having held the sam e as u nexplained cash credits within the m eaning o f above deem ing provisions.
4. The Ld. CIT(A) has erred both on facts and in law and in the circu m stan ces o f the case in confirm ing addition o f R s .1 8,000/- u/s 69 o f IT A c t on a ccou nt o f com m ission paid on the cash cred it in g ro u n d no. 3 as such addition are b ase d on m ere conjectures and surm ises and there is no m ate ria l before the A ssessing O fficer on w hich this addition can be supported.
5. The a p p e lla n t craves leave to add, delete, m o d ify / a m end the above grounds o f appeal with the p erm ission o f the H o n 'ble appellate authority. "
2. Apropos, ground no. 2, the assessee has challenged the validity of the reassessm ent proceedings on the ground of non application of mind by the com petent authority w hile recording satisfaction u/s 151 of the IT Act. Since, this is a legal issue which goes to the root of the m atter and hence, taken up for adjudication on priority.
3. Briefly, the facts of the case are that the assessee is a private limited company, engaged in the business of finance and investment. The Assessing Officer had issued notice u/s 148 dated 11.03.2015 based on the information received from the Direction of Income Tax, (Investigation), stated to be pertaining to 3 ITA NO.1221/DEL/2018 Assessment Year: 2008-09 accom modation entries business done by M/s. S. R. Jain group. During the course of reassessm ent proceedings, the Assessing Officer (The AO) has identified the two com panies nam ely M/s. S. R. Cables and M./s. GSK Infrastructure (formerly named M/s. Nisha Holding P Ltd) to be related to the S.K. Jain Group as dummy entities from whom assessee has received accom m odation entries of 5,00,000/- each.Accordingly the Assessing Officer has com pleted the assessm ent proceedings with the m ade addition of Rs. 10 lacs and Rs. 18000 u/s 68 of the IT Act on account of unexplained cash credit and com m ission income @ 1 . 8 % as expenditure incurred for the said accom m odation entries.
4. Aggrieved assessee, filed appeal before the Ld. CIT(A) taking up the subject legal issue, vide ground No.2 and 3 in the 1st appellate Proceedings. The assessee has challenged the validity of the assessm ent on the ground of non application of mind before the Id. CIT(A) as under
" 2. The A sse ssing O ffice r h as assum ed ju risd ictio n u/s 147 w itho ut applying m ind on the inform ation p a sse d on b y the D l investigation and reo pe nin g is b ase d on m ere subjective opinion as p e r inform ation n o t backed b y a ny m aterial.
3. The reo pe nin g o f a ssessm en t u/s 147 is bad in la w as the reason recorded u/s 148 are non sp ecific vague a nd gen eral and the sam e does n ot dem onstrate as to how A sse ssing O ffice r form ed a b e lie f th a t incom e chargeable to tax has escaped a ssessm en t and therefore co nse qu en t a ssessm en t n ee d be se t aside. "
5. W hile rejecting the assessee appeal, the Ld. CIT(A) dispose of the legal ground sum m arily as follows g. "The appellant has raised a basic challenged on the raisen detre o f this reopening. The approval und e r section 151 is contrary to the position 4 ITA NO.1221/DEL/2018 Assessment Year: 2008-09 o f la w as devolving from the ju d g m e n t o f the H o n 'ble Jurisdictional High Court. It has been contended that the com petent authority has not disclosed as to how the case was fit fo r issue o f notice u/s 148. The requirem ent o f section 151 is require com petent authority u/s 151 to satisfy its e lf about sufficient reason fo r invoking the provisions o f reopening as to w hether it is a fit case fo r reassessm ent. H o n 'ble D elhi High Court in Pr. C om m issioner o f Incom e Tax-06 Vs. M/s. N. C. Cables Ltd. ITA No. 335/2015 vide o rd er dated 11.01.2017 given re lie f to the a ppellant on the sam e issue. The sam e is not a ratio decidendi as it is based on case specific facts. The supervisory o ffice r has recorded clear and conspicuous satisfaction in this case, hence the ruling does n ot help the appellant. "
6. The Id. Counsel for the assessee has reiterated the subm issions made before the CIT(A) and filed brief synopsis in of support the legal issue alongwith a paper book, APB 1- 125. The Ld. AR has filed a copy of notice dated 11.03.2015 issued u/s 148 of the IT Act (APB page 250), copy of reasons recorded for reopening of the case (APB 26 to 27), copy o f letter dated 27.1.2016 raising objections to assum ption of jurisdiction by the Assessing O fficer (APB page 28 to
29), copy of letter dated 26.08.2016 disposing of the objection of the appellant (APB 30 to 35), a copy o f show cause notice dated 07.03.2016 issued by the Assessing Officer with annexures A and B (APB 36 to 60), copy o f docum ents submitted before the Assessing O fficer in support of share application money of Rs. 5 lacs each from S. R. Cables Private Limited and M./s. Nisha Holding Private Limited, the confirmation certificate of incorporation com pany data, list of two directors down 5 ITA NO.1221/DEL/2018 Assessment Year: 2008-09 from MC Portal copy of share application entry dissolution of board of directors, bank statem ent of relevant period, copy of ITR assessm ent 2008-09, copy of audited report assessm ent years 2008-09(APB 61 to 93), copy of confirm ations by the share applicant com panies (APB 94 to 113), copy o f letter dated 12.02.2016 to Assessing O fficer subm itting the docum ents regarding the share application accepted, copy of letter dated 14.03.2016 to the Assessing O fficer requested the statem ent of persons concern, copy of return allotm ent dated 31.03.2008 (APB 116 to 120) and copy o f sum m ons dated 14.03.2016 acknowledge dated 16.03.2016 filed with the Assessing O fficer (ABP 121 to 125).
7. The Id. AR brought to our notice, the copy of printed proform a of obtaining approval u/s. 151 of the Act along with reasons recorded, (APB,26-27), that in column 12 Addl. CIT has granted approval w ithout application of mind by writing only 'Yes, I am satisfied' Fit for issue of notice u/s 148 of the IT Act. The Id. AR relying on the decision of Hon'ble Madhya Pradesh High Court in the case of CIT vs. M/s. S. Goyanka Lime and Chemicals Ltd. 231 Taxm an 0073 (MP), where it was held that the Joint C om m issioner recorded satisfaction in mechanical manner and without application of mind to accord sanction for issuing notice u/s. 148 of the Act and has only recorded so "Yes, I am satisfied" then, the reopening assessm ent has to be held as invalid. In support, the Ld. AR placed reliance on the following judgm ents of Jurisdictional High Court.
1) Pr. CIT vs. Meenakshi Overseas(P) Ltd 395 ITR 677 (Del)
2) Pr. CIT vs. G & G Pharma India Ltd 384 ITR 147 (Del)
3) Pr. CIT vs. RMG Polyvinyl (I) (2017) Ltd 396 ITR 5 (Del) 6 ITA NO.1221/DEL/2018 Assessment Year: 2008-09
8. The Id. AR drew our attention towards reasons recorded and submitted that there is no nexus established or to substantiate the reasons recorded which shows a casual approach of the AO while recording the reasons. The Id. AR submitted that as per decision of Hon'ble Jurisdictional High Court of Delhi in the case of PCIT vs. Meenakshi Overseas P. Ltd. 395 ITR 677 (Del) if the reasons failed to dem onstrate the link between the tangible material and form ation of the reasons to believe that the income has escaped assessm ent then, it would am ount to borrowed satisfaction and it has to be presumed that there is no independent application of mind by the AO to the tangible material which form s the basis of the reason to believe that income has escaped assessment.
9. The Id. AR vehem ently contended that in the reasons recorded, the AO, made a short note w ithout applying mind to the information received from the Investigation W ing, and recorded that he has reason to believe that an income of Rs. 10,00,000/- has escaped assessm ent which clearly shows that the AO proceeded to initiate assessm ent proceedings and reopening of assessm ent w ithout having any valid satisfaction on the basis of borrowed satisfaction as there was no independent application of mind to the tangible material received from Investigation W ing, which could form the basis for reason to believe that income has escaped assessm ent.
10. Again, placing reliance on the decision of Hon'ble High Court of Delhi in the case of PCIT vs. G&G Pharma India Ltd. (Supra), the Ld. AR submitted that reopening o f assessm ent by an AO based on the information received from the Director of Investigation w ithout making any effort to discuss the materials on the 7 ITA NO.1221/DEL/2018 Assessment Year: 2008-09 basis on which he formed a prima facie opinion that income had escaped assessment. The Court held that the basic requirem ent of s. 147 of the Act that AO should apply independent mind in order to form reasons to believe that income had escaped assessm ent had not been fulfilled.
11. Further, the Id. Counsel for the assessee submitted that as per ratio of the decision of Hon'ble High Court of Delhi in the case of PCIT vs. RMG Polyvinyl (I) Ltd. reported in 396 ITR 5 (Del), it was held that where information was received from investigation wing that assessee was beneficiary of accom m odation entries but no further inquiry was undertaken by AO, said information could not be said to be tangible material as per se and, thus, reassessm ent on said basis was not justified. Finally, the Id. AR submitted that the impugned initiation of reassessm ent proceedings, notice and all consequent proceedings and orders are not valid and bad in law therefore, the sam e may kindly be quashed.
12. Per contra, the Id. DR subm itted that the copy of proform a fo r obtaining approval u/s. 151 of the Act and reasons recorded by the AO are the internal departm ental com m unication between the PCIT and AC IT and the Addl. CIT being adm inistrative head of the Range and senior to the AC IT has power to peruse the approval u/s. 151 of the Act and his sings thereon does not make the same as mechanical and w ithout application of mind and the same cannot be termed or alleged as invalid or bad in law. The Id. DR submitted that in column 12 of approval, the AO has been granted valid approval by noting that "Yes, I am satisfied" , fit for issue of notice u/s 148 of IT Act., which is sufficient to com ply with the provisions of s. 151 of the Act.
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ITA NO.1221/DEL/2018 Assessment Year: 2008-09
13. The Id. AR subm itted that facts on record clearly show that the AO has acted on suspicion only and not on any credible input available to him through DDIT (investigation) information or otherwise on the basis of any exercise or application of mind by himself. Therefore, the reassessm ent proceedings and all consequent orders are not sustainable and bad in law. Reiterating his earlier arguments, the Id. AR vehem ently pointed out that the approval/sanction given in para 12 of the proforma is not a valid sanction as per ratio of the various decisions including decision of Hon'ble High Court of Madhya Pradesh in the case of S. Goyanka Lime and chem icals Ltd. (supra), which has been upheld by H on'ble Suprem e Court by dismissing SLP of the Revenue reported in 237 Taxm an 378 (SC) and therefore, initiation of reassessm ent proceedings u/s. 147 of the Act, notice u/s. 148 of the Act, reassessm ent proceedings and all consequent orders may kindly be quashed. The decisions relied by the Ld. Sr. DR are distinguished on peculiar facts as those are on prima face belief.
14. Heard. A fter careful consideration of above rival subm issions, we may point out that from the proform a of approval u/s. 151 of the Act placed at pgs. 26-27 of the assessee paper book, it is clear that the A C IT was granted approval for the issue of notice u/s. 148 of the Act, in column 12 by writing that "Yes, I am satisfied", fit for issue of notice u/s 148 of IT Act which is not sufficient to com ply with the requirem ent of s. 151 of the Act.
15. It is evident that such approval or satisfaction recorded in the standard printed form at is too mechanical and w ithout any application of mind. In the case of "CIT Vs. M/s. S. Goyanka Lime and Chem icals Ltd. (supra)" it was held that Joint 9 ITA NO.1221/DEL/2018 Assessment Year: 2008-09 Com m issioner of Income Tax recorded satisfaction in m echanical m anner and without application o f mind to accord sanction fo r issuing notice u/s 148 of the Act, reopening of assessm ent was invalid.
16. In the reasons recorded, the Assessing O fficer has reproduced the information received from investigation wing w ithout conducting any enquiries on such information received that shows non application of mind as evident from the facts stated by the Assessing O fficer in the last para the information received from the investigation wing is considered with reference to the return of income available on record, having satisfaction with the application / information received in the case of the assessee, I have reason to believe that income has escaped assessment. However, he has not mentioned the factum of quantum incom e of Rs.10 lacs of share application m oney and the name of the suspicious accom m odation entry providers for A. Y. 2008-09 to establish/substantiate reason to believe and the escaped assessm ent within meaning of the provision of section 147 of the IT Act 1961.
17. The above information in the reasons recorded clearly shows that the Assessing O fficer has sim ply relied on the information received from the investigation wing w ithout verifying the same with reference to the facts of the case; that the Assessing O fficer has not even mentioned the name of the entity from whom so called entry of share application money was accepted by the assessee, instrument number, bank account and date on which the entry was made which are essential information to support the application of mind by the Assessing Officer. The judgm ent of H on'ble Delhi High Court vicisiate by the Assessing Officer and 10 ITA NO.1221/DEL/2018 Assessment Year: 2008-09 Hon'ble Suprem e Court relied upon by the Ld. DR (supra). W hile rejecting the objection on the ground the information received contain m inusure detail of the entry should operator and the above named particulars. In the absence of the said essential detail being part of the reason, the reason recorded is am biguous vague and non com m unicative thus, the reason does not stand at its footing and not self contain.
18. As per ratio of the decision of High Court o f Madhya Pradesh in the case of CIT v. M/s. S. Goyanka Lime and Chemical Ltd. (supra), where the JCIT/ACIT has only recorded "Yes, I am satisfied" then, it has to be held that the approving authority has recorded satisfaction in a m echanical m anner and w ithout application of mind to accord sanction for issuing notice u/s. 148 of the Act for reopening of assessment and in this situation initiation of reassessm ent proceedings and reopening of assessm ent has to be held as invalid and bad in law. Therefore, we are hold that the reopening of assessm ent and notice u/s. 148 of the Act are bad in law and consequently all subsequent proceedings in pursuant thereto are also bad in law and the same cannot be held as valid and sustainable.
19. In view of decisions of Hon'ble High Court of Delhi in the cases of PCIT vs. Meenakshi Oversaes (supra), PCIT vs. G&G Pharma (I) Ltd. (supra) and decision in the case of PCIT vs. RMG Polyviny (I) Ltd. (supra), where information was received from investigation wing that assessee was beneficiary of accom m odation entries but no further inquiry was undertaken by AO, said information could not be said to be tangible material per se and, thus, reassessm ent on said basis was not justified. In the case of Meenakshi Overseas (supra), their lordship speaking for the Hon'ble 11 ITA NO.1221/DEL/2018 Assessment Year: 2008-09 Jurisdictional High Court held that where the reasons recorded by the AO failed to dem onstrate the link between the tangible material and the form ation of the reasons to believe that income has escaped assessm ent then, indeed it is a borrowed satisfaction and the conclusion of the AO based on reproduction of conclusion drawn in the investigation report cannot be held as valid reason to believe without application of mind. In this judgm ent their lordship also held that w here nothing from the report of investigation wing is set out to enable the reader to appreciate how the conclusions flow there from then there is no independent application of mind by the AO to the tangible material which form the very basis of the reasons to believe that income has escaped assessment.
20. In the instant case, as we have noted above, the note of satishfaction recorded by the AO in para 10 of the reasons is based on the information received from the director of investigation wing and the AO w ithout making any effort to examine and discuss the material received from the Investigation W ing with the support of tangible material gathered by way of conducting inquiry shall be held as without application of the mind since, he has used the same to form reason to believe that income had escaped assessment. This also shows that the AO proceeded to initiate reassessm ent proceedings on the basis of borrowed satisfaction w ithout any application of mind and exercise on the information received from the Investigation W ing of the Department. Therefore, we have no hesitation to hold that the AO proceeded to initiate reassessm ent proceedings u/s. 147 of the Act and to issue notice u/s. 148 of the A ct on the basis of borrowed satisfaction and without any application of mind and exam ination of the so called material and 12 ITA NO.1221/DEL/2018 Assessment Year: 2008-09 information received from the investigation wing to establish any nexus, even prima facie, with the such information. Therefore, in our considered opinion the initiation of reassessm ent proceedings u/s. 147 of the Act, notice u/s. 148 of the Act, reassessm ent proceedings and all consequent proceeding and orders, including impugned reassessm ent and first appellate order, are bad in law and thus, not sustainable and we hold so.
21. In the above view, as such, the impugned proceedings, notice u/s. 148 of the Act and all consequent orders are quashed.
22. Since, we have quashed initiation of reassessm ent proceedings u/s. 147 of the Act, notice u/s. 148 of the Act, reassessm ent proceedings and impugned reassessm ent & first appellate order therefore, other grounds of the assessee on merits become academ ic and infructuous.
( O r d e r P r o n o u n c e d in t h e O p e n C o u r t on . .2 8 / 1 2 / 2 0 1 8 ) .
Dated: 2 8 /1 2 /2 0 1 8
*N eha/D oc*
Copy forw arded to:
1. A ppellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSIS TANT REG ISTR AR
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ITA NO.1221/DEL/2018
Assessment Year: 2008-09
D a te o f d i c t a t i o n 27.12.2018
Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other M em ber Date on which the approved draft comes to the Sr. PS/PS Date on w hich the fair order is placed before the Dictating M ember for pronouncem ent Date on which the fair order com es back to the Sr. PS/PS Date on which the final order is uploaded on the w ebsite o f ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date o f dispatch o f the Order