Income Tax Appellate Tribunal - Delhi
Tara Alloys Ltd., New Delhi vs Ito, New Delhi on 1 March, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'SMC' : NEW DELHI)
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
ITA No. 2421/Del/2017
Assessment Year: 2005-06
M/s TARA ALLOYS LTD., Vs. ITO, WARD 25(1)
102, HARSHA HOUSE, NEW DELHI
KARAMPURA COMMERCIAL COMPLEX,
NEW DELHI
(PAN: AAACT0545N)
(APPELLANT) (RESPONDENT)
Assessee by : Sh. AMIT GOEL, ADV.
Revenue by : Sh. V.K. JIWANI, SR. DR
ORDER
The Assessee has filed the Appeal against the Order dated 06.3.2017 of the Ld. CIT(A)-33, New Delhi pertaining to assessment year 2005-06 and raised the following grounds:-
1. On the facts and circumstances of the case and in law, the AO erred in issuing notice u/s. 148 of the Act. The notice u/s. 148 issued in this case is illegal, void and without jurisdiction and accordingly the assessment order passed on the foundation of such notice is liable to be quashed. The Ld. CIT(A) ought to have held the reassessment proceedings as illegal, void and without jurisdiction.2
2. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the addition made by the AO of share capital of Rs. 40,80,000/- as alleged unexplained cash credit u/s. 68 of the Act. The addition made by the AO is not sustainable and CIT(A) ought to have deleted the same.
3. The alleged reasons given by AO and CIT(A) for making / confirming the addition of Rs. 40,80,000/-
are erroneous, both on facts and in law and, therefore, the addition of Rs. 40,80,000/- made by the AO and confirmed by CIT(A) is 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. The brief facts of the case are that the proceedings u/s. 147/148 of the Income Tax Act, 1961 (hereinafter referred as the Act) were initiated in this case after recording the reasons on the basis of the information received from the Investigation Wing of the Department, Delhi on the basis of search and seizure operation carried out on Tarun Goyal Group of cases, that certain persons/Cos. were using services of accommodation entry operators to channelize 3 their own unaccounted money in their regular books of accounts by routing the same through the accounts of accommodation entry providers. The modus operandi adopted by such beneficiaries of the services of accommodation entry providers was detected to be as under:-
"The persons who had unaccounted money (hereinafter called as entry takers or beneficiaries) and wanted to introduce the same in the books of accounts without paying tax, approached such another person(hereinafter called as entry operator)and would hand over the 'cash plus commission to the latter. The entry operator in turn would issue cheques/DDs/Pos in the name of the beneficiary from the same account(in which the cash is deposited) or routed through a chain of bank accounts in forms of cheques etc. or transferred through clearing in two or more stages. The beneficiary thereafter deposited these instruments in its bank account and the money would come to his regular books of account in the form of gift, share application Money, loan, transaction of sale of unquoted shares etc. through banking channels.
A search u/s 132 of the l.T.Act, 1961 was conducted at the office premises of Shri Tarun Goyal, Chartered Accountant at 13/34, WEA, Arya Samaj Road, Karol Bagh, New Delhi by the Investigation Wing on 15.9.2008. Shri Tarun Goyal created a number of private limited Companies and firms for providing accommodation entries. The Directors of these companies were his employees who worked in his 4 office as peons, receptionists etc. All the documents were got signed from these employees. "A number of Bank accounts in various banks were opened in the names of these companies and his employees, in which huge case deposits were made. Later cheques were issued to various beneficiaries, disguising the whole transaction as genuine. During the course of search it was established that Shri Tarun Goyal has floated about 90 companies anies for the purpose of providing accommodation entries. All the companies floated by Tarun Goyal are not carrying out any genuine activity and are merely being used to provide accommodation entries. Hence all the companies of Shri Tarun Goyal are 'bogus'.
All the companies are operating from the office of Shri Tarun Goyal from 13/34, WEA, Arya Samaj Road, Karol Bagh, New Delhi and at his former office Viz: 203, "Dhaka Chambers, 39, Naiwala Karol Bagh, New Delhi. All the cheque books etc were found in the same premises.
The bank accounts of accommodation entry providers and other documents were seized by the investigation wing which is integral part of the department and it is seen that the name of assesee company also figures in the list of names having received from such accounts of operators, amount in aggregate amounting to Rs. 40,80,000/- from M/s. Geefcee Finance Ltd. The above company is found by the investigation wing as engaged in business of providing accommodation entries.5
2.1 In view of above the case of the assessee was selected for scrutiny as per the provisions of section 147 and 151 of the I.T. Act, 1961 and accordingly notice u/s 148 of the Act was issued to the assessee on 23.3.2012.
2.2 In response to the notice u/s. 148 of the Act, a letter dated 16.4.2012 was filed by the assessee stating therein that return of income tor A.Y. 2005-06 was filed 31.10.2005 vide acknowledgement No. 2455 dt. 31. 10.2005 be treated as a return filed in pursuance of captioned notice u/s 148 of the Act declaring an income of Rs.6340/, and its nature of business of commission agent. Thereafter a notice u/s 143(2) of the I. T. Act, 1961 issued on 7.5.2012, but none attended on the given date. Further notice issued on 8.10.2012. On 19.11.2012 assesee/ AR of the assessee attended, a copy of the reasons recorded was provided to him and specifically asked to file objection if any, within 7 days. But on given date attended nor any reply was filed. The assessee has not filed any objection w.r.t. issue of notice u/s. 148 of the I.T. Act, 1961. 2.3 Shri Rajinder Aggarwal, Director of the company and A.R. of the assessee attended the proceedings from time to time. During the course assessment proceedings vide order sheet entry dated 15.3.2013 the assessee was specifically asked to explain and justify the transaction with M/s Geefcee Finance Ltd. amounting to Rs.40,80,000/- received as share application money/share capital, in 6 case of non compliance or non justification why the same should not be disallowed or added in the income of the assessee. 2.4 The reply of the assessee vide letter dt. 22.3.2013 filed earlier have been considered but not found tenable by the AO. AO observed that as per bank statement of M/s Geefcee Finance Ltd., The Karur Vishya Bank Ltd., Karol Bagh, New Delhi Current A/c No. 1592 for the period 1.4.2004 onward shows regular deposit of cash and the same has been transferred to the other bank accounts from these banks accounts the funds transferred to the beneficiary accounts including ABN Amro Bank. It is also evident from the another bank account of M/s Geefcee Finance Ltd., in HDFC Bank, Old Rajinder Nagar account No. 0026230001027 that huge / high value cheques have been deposited regularly and transferred regularly to the other accounts. There is no specific business of the company from where daily cash has been generated. AO further noted that further copies of the bank statements filed by the assessee of M/s Geefcee Finance Ltd vide its letter dated 19.3.2013 also revealed that there was high value cheque deposit or fund transfer through clearing in the accounts of M/s Geefcee Finance Ltd. immediately preceding dates on which date the fund has transferred by the company to M/s Tara Alloys. It can be seen from the following details:7
Bank account of M/s GeeFcee Ltd. in ABN Amro Bank Barakhamba Road shows on 25.3.2004 an amount of Rs. 10 lacs deposited through by cheque and on same date an amount of 6 lacs transferred in the account of MIs. Tara Alloys account. Similarly in bank of Punjab account of M/s Geefcee Finance Ltd. no.0200 11.02174 at Karol Bagh branch Delhi, it is evident on the same date or immediately preceding dates the same amount as transferred to M/s Tara Alloys or higher value amount have been received through high value cheques such as on 24.6.2004 assessee received Rs. 6 lacs and on immediately preceding date i.e 23.6.04 Rs.8 lacs have been deposited as Sai Dwarka, on 26.6.2004 assessee received Rs.6 lacs from M/s Geefcee Finance Ltd. and on same date the same amount has been deposited in its accounts from Merta Finance Ltd. one of the company of the entry operator which is used as providing accommodation entry. Similarly same pattern has been found in all the money received by the assessee.
2.5 In view of above the claim of the assesee that they have genuine business transaction with M/s Gee fcee Finance Ltd. and as stated by Shri Tarun Goyal in his statement recorded on 22.3.2013 that they have genuine business transactions cannot be tenable.
Further mere filing application for license for mining doesn't affected the growth of the company immediately which the M/s Geefcee Finance Ltd. invested a sum of Rs. 4080000/- almost 90% capital of assessee company. The assessee company has also not having any 8 technical expertise in the mining industry. In view of the above, AO concluded that it is a camouflage just to introduce its own fund through entry operator. Therefore, an amount of Rs. 40,80,000/- was added in the income of the assessee company as unexplained u/s. 68 of the Act and AO completed the assessment at Rs. 40,86,340/- u/s. 147/143(3) of the Act vide order dated 26.3.2013.
3. Against the Order of the AO, assessee appealed before the Ld. CIT(A), challenging the reopening as well as the additions in dispute who vide his impugned order dated 06.03.2017 has dismissed the appeal of the Assessee by upholding the order of the AO.
4. Aggrieved with the aforesaid order of the Ld. CIT(A), Assessee is in Appeal before the Tribunal for challenging the legal issue as well as the merit of the case i.e. deletion of addition of Rs. 40,80,000/-.
5. At the time of hearing, Ld. Counsel of the assessee has argued the legal ground as well merits of the case. He stated that that notice u/s. 148 of the Act is illegal, void, and without jurisdiction and accordingly the assessment order passed on the foundation of such notice is liable to be quashed. First of all, he draw our attention towards Page no. 84-87 of the Paper Book which is a copy of Form for recording the reasons for initiating proceedings under section 148 of the Act and for obtaining the approval of the Addl. CIT, Range-16, New Delhi and stated that no proper reasons 9 were recorded; no nexus between the materials relied upon and the belief formed for escapement of income; no application of mind; no proper satisfaction was recorded before issue of notice u/s. 148; no independent conclusion that there was escapement of income and no proper satisfaction / approval has been obtained from the Addl. CIT; Ld. Addl. CIT has granted the approval for reopening of the assessment in a mechanical manner and without due application of mind by writing the word "Yes, I am satisfied that it is a fit case for reopening u/s. 147". To support his contention he submitted that the issue in dispute is squarely covered in favour of the assessee by the ITAT decision dated 09.1.2015 in the case of G&G Pharma India Limited vs. ITO passed in ITA No. 3149/Del/2013 (AY 2003-04) in which the Judicial Member is the Author. He further stated that the above decision of the ITAT dated 9.1.2015 has been upheld by the Hon'ble Jurisdictional High Court in its Decision dated 08.10.2015 in ITA No. 545/2015 in the case of Pr. CIT-4 vs. G&G Pharma India Ltd. In this behalf, he filed the copy of the order dated 9.1.2015 of the ITAT, Delhi Bench passed in the case of G&G Pharma India Ltd vs. ITO (Supra) and referred the page nos. 88-105 of his Paper Book. He further draw our attention towards the page no. 106-108 which is a copy of decision dated 14.10.2014 of Hon'ble High Court of Madhya Pradesh in the case of CIT vs. S. Goyanka Lime & Chemical Ltd.reported as (2015) 56 taxmann.com 390 (Madhya Pradesh) which was late upheld by the Hon'ble 10 Supreme Court of India in SLP © No. 11916 of 2015 vide judgment dated 8.7.2015 reported as (2015) 64 taxmann.com 313 (SC). Therefore, he requested that by following the aforesaid precedents the reassessment proceedings of the AO may be quashed by accepting the Appeal filed by the Assessee. 5.1 However, on the merit of the case, ld. Counsel of the assessee has stated that AO has made the addition of share capital of Rs. 40.80 lacs invested in the company by GEEFCEE Finance Ltd. There was no reason or basis for making the addition of the aforesaid amount of share capital of Rs. 40.80 lacs u/s. 68 of the Act. The assessee had furnished before the AO all the necessary details and documentary evidences to discharge its onus u/s. 68 of the Act. He further stated that the documents / details submitted before the AO proved not only the identity of the share holder but also their creditworthiness and the genuineness of the transactions and the addition was made based upon the doubts / reasons which are not sustainable on facts as well as in law. Ld. Counsel of the assessee further stated that it is apparent from the assessment order, the AO has initiated the reassessment proceedings and made the impugned addition of Rs. 40.80 lacs on the basis of some search u/s. 132 of the Act conducted in the case of Sh. Tarun Goyal and during the course of assessment proceedings, statement on oath of Tarun Goyal was recorded by the AO on 22.3.2013 and in the said statement, Sh. Tarun Goyal confirmed the AO about his company GEEFCEE Finance 11 Ltd. having made investment of Rs. 40.80 lacs in the assessee company. Hence, there remains no basis for the AO to make the addition. In view of the above, Ld. AR of the assessee requested that addition in dispute may be deleted and appeal of the assessee may be allowed.
6. On the contrary, Ld. DR relied upon the order passed by the authorities below and stated that the reasons for reopening and in turn Ld. Addl. CIT has granted the approval for the same, by due application of mind. He further stated that approval granted by the Addl. CIT is not mechanical on the contrary the Addl. CIT has fully considered the facts of the case and after due consideration of the facts has given a direction for reopening of the case by writing the word "Yes, I am satisfied that it is a fit case for reopening u/s. 147". Therefore, he stated that, it cannot be said that the sanction was granted mechanically or without application of mind. Moreover, on the merits of the case, Ld. DR relied upon the orders of the authorities below and stated that AO as well as Ld. CIT(A) both have rightly observed that the it is a camouflage just to introduce its own fund through entry operator, hence, the addition of Rs. 40.80 lacs was rightly made in the hands of the assessee.
7. I have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities and the case law cited by the assessee's counsel on the issue in dispute. 12 In my view, it is very much necessary to reproduce the reasons recorded by the AO before issue of notice u/s. 148 of the Act and the approval of the Ld. Addl. CIT, Range-2, New Delhi for reopening of assessment which reads as under:-
"FORM FOR RECORDING THE REASONS FOR INITIATING PROCEEDINGS U/S. 148 AND FOR OBTAINING THE APPROVAL OF THE ADDL. COMMISSIONER OF INCOME TAX / COMMISSIONER OF INCOME TAX-Range-16, New Delhi
1. Name & Address of the M/s Tara Alloys Ltd.
Assessee 102, Harsha House Karampra
Commercial Complex,
New Delhi
2. PAN AAACT0545N
3. STATUS COMPANY
4. RANGE / WARD WARD-16(1), DELHI
5. Assessment Year in 2005-06
respect of which it is
proposed to issue notice
u/s. 148.
6. The quantum of income Rs. 40,80,000/-
which has escaped assessment.
7. Whether the assessment As per office record, yes.
is proposed to be made for the first time. If the rely is in affirmative.
Please state
8. If the answer to item 8 is in the negative please state:-
(a) The income
originally
assessed. N.A.
(b) Whether it is a
case of too low
13
a rate,
assessment
under
assessment,
assessment at
been made the
subject of
excessive relief
or allowing of
excessive loss
of depreciation
9. Whether the provisions
of section 150(1) are
applicable, if the reply is
in the affirmative, the
relevant facts may be
stated against item no.
11 and it may also be No
brought out that the
provision of section
150(2) would not stand
in the way of initiating
proceedings u/s. 147.
10. Reasons for the belief As per Annexure 'A' that income has escaped assessment.
Dated 23/3/2012 Sd/-
(Dharam Singh) Income Tax Officer, Ward 16(1), Delhi
11. Whether the Commissioner I.T. Yes, I am satisfied Is satisfied on the reasons that it is a fit case for recorded By AO that it is a reopening u/s. 147.
fit case for the issue of
Notice u/s. 148
Date: 23.03.2012 Sd/-
(Sunita Singh)
Addl. CIT, Range16(1), N Delhi
14
INCOME TAX DEPARTMENT
M/S TARA ALLOYS LTD. AY 2005-06
ANNEXURE -A
As per the report of the Investigation Wing of the Department, Delhi, during the investigation in certain cases of "Accommodation entry operators" It was revealed that certain persons were using services of these accommodation entry operators to channelize their own unaccounted money in their regular books of accounts by routing the same through the accounts of Accommodation entry providers. The findings of the "Investigation Wing" of the Department, were brought to the knowledge of all Assessing Officers alongwith the data collected on the entries provided through their bank accounts, in the course of investigation. The modus operandi adopted by such beneficiaries of the services of accommodation entry providers was detected to be as under :-
A) The persons who had unaccounted money (hereinafter called as entry takers or beneficiaries) and wanted to introduce the same in the books of accounts without paying tax, approached such another person (hereinafter called as entry operator) and would have over the cash (plus commission) to the latter. The entry operator in turn would issue cheques / DDs/Pos in the name of the beneficiary from the same account (in which the cash is deposited) or another account in which funds are transferred through clearing in two or more stages.
B) The beneficiary thereafter deposited these instruments in its bank account and the money would come to his regular books of account in the form of gift, share application money, loan, transaction of sale of unquoted shares etc through banking channels. C) The statement of bank accounts of accommodation entry providers were collated by the Investigation wing and it is seen that the name of the assessee company also figures in the list of names having received from such accounts of entry operators, amounts in aggregate amounting to Rs.4080000/- whose from Geefcee Finance Limited.
The above named companies I found by the Investigation Wing as engaged in business of providing accommodation entries only and they had no other business.
In view of above, I have reasons to believe that this is a fit case for reopening u/s. 147 of the Income Tax Act, 1961. 15
As per the records of this ward, no scrutiny was done in this case approval is therefore solicited for issuing notice u/s. 148.
Sd/-
( Dharam Singh ) Dt. 23.03.2012 ITO, Ward 16(1), N Delhi"
8. After going through the reasons recorded by the Assessing Officer/ITO, Ward 16(1), New Delhi for reopening and the approval thereof by the Ld. Addl. CIT, Range-16, New Delhi, I am of the view that AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. In my 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, I am 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. Even otherwise, a perusal of the above demonstrates that the Addl. CIT has written ""Yes, I am satisfied that it is a fit case for reopening u/s. 147" which establishes that he has not recorded proper satisfaction / approval, before issue of notice u/s. 148 of the I.T. Act. Thereafter, 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, I am of the 16 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. My view is supported by the following judgments/decisions:-
(A) The Tribunal in its decision dated 9.1.2015 passed in ITA No. 3149/Del/2013 (AY 2003-04) in the case of G&G Pharma India Limited vs. ITO, has held under:-
"8. We have perused the aforesaid reasons recorded by the AO for reopening the assessment in dispute and we are of the considered view that the AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. A mere reference is made to certain information received from the Investigation Wing which was supplied to the assessee vide AO's letter dated 15.9.2010. 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 had mechanically issued notices u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of 17 Investigation, Jhandewalan, New Delhi.
Keeping in view of the facts and circumstances of the present case and the 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. We draw our support from the judgments of the Hon'ble High Court of Delhi in the following cases:-
(i) 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:18
"(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 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 19 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."
(ii). In the case of CIT vs. Atul
Jain reported in 299 ITR 383 it has
been held as under:-
"Held, dismissing the appeals, that the only information was that the assessee had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque for that amount. The information did not 20 indicate the source of the capital gains which in this case were shares. There was no information which shares had been transferred and with whom the transaction had taken place. The AO did not verify the correctness of information received by him but merely accepted the truth of the vague information in a mechanical manner.
The AO had not even recorded his satisfaction about the correctness or otherwise of the information for issuing a notice u/s 148. What had been recorded by the AO as his "reasons to believe"was nothing more than a report given by him to the Commissioner.
The submission of the report was not the same as recording of reasons to believe for issuing a notice. The AO had clearly substituted form for substance and therefore the action of the AO was not sustainable."
9. In view of above, we are of the considered view that above issue is exactly the similar to the issue involved in the present appeal and is squarely covered by the aforesaid decisions of the Hon'ble High Court of Delhi. Hence, respectfully following the above precedent, we decide the legal issue in dispute in favor of the Assessee and against the Revenue and accordingly quash the reassessment proceedings. The other issues are not dealt with as the same have become academic in nature. 21
10. In the result, the Appeal filed by the Assessee stands allowed."
(B). 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 would not have been difficult for the AO, 22 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 23 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."
(C) ITAT, 'E' Bench, New Delhi in the case of ITO vs. M/s NC Cables Ltd. in ITA No. 4122/Del/2009 (AY 2001-02) and in Cross Objection No. 388/Del/2009 in the matter of M/s NC Cables Ltd. vs. ITO, vide order dated 22.10.2014, the Tribunal has held as under:-
24
"10.2. The Mumbai 'E' Bench of the Tribunal in ITA 611/Mum/2004 Amarlal Bajaj (supra) order dt. 24.7.2013 has considered the legal position and held as follows.
"5. We have considered the rival submissions and carefully perused the orders of the lower authorities and also the material evidences brought on 8 record from both sides. We have also the benefit of perusing the order sheet entries by which the Ld. CIT has granted sanction. Let us first consider the relevant part of the provisions of Sec. 151 of the Act.
151. (1) In a case where an assessment under sub- section (3) of section 143or section 147has been made for the relevant assessment year, no notice shall be issued under section 148[by an Assessing Officer, who is below the rank of Assistant Commissioner [or Deputy Commissioner}, unless the [Joint} Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice} : 25
Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice. (2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of [Joint} Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the [Joint} Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.} [Explanation.-For the removal of doubts, it is hereby declared that the Joint Commissioner, the Commissioner or the Chief Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148,need not issue such notice himself.} "26
6. A simple reading of the provisions of Sec. 151(1) with the proviso clearly show that no such notice shall be issued unless the Commissioner is satisfied on the reasons recorded by the AO that it is a fit case for the issue of notice which means that the satisfaction of the Commissioner is paramount for which the least that is expected from the Commissioner is application of mind and due diligence before according sanction to the reasons recorded by the AO. In the present case, the order sheet which is placed on record show that the Commissioner has simply affixed "approved" at the bottom of the note sheet prepared by the ITO technical. Nowhere the CIT has recorded his satisfaction. In the case before the Hon'ble Supreme Court (supra) that on AO's report the Commissioner against the question "whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148 merely noted "Yes" and affixed his signature there under. On these facts, the Hon'bIe Supreme Court observed that the important safeguards provided in sections 147 and 151 were lightly treated by the officer and the Commissioner. The Hon'ble Supreme Court 27 further observed that the ITO could not have had reason to believe that income had escaped assessment by reasons of the appellant-firm's failure to disclose material facts and if the 9 Commissioner had read the report carefully he could not have come to the conclusion that this was a fit case for issuing a notice under section 148. The notice issued under section 148 was therefore, invalid. It would be pertinent here to note the reasons recorded by the AO. "Intimation has been received from DCIT-24(2), Mumbai vide his letters dt. 22nd February, 2002 that one Shri Nitin 1. Rugmani assessed in his charge had arranged Hawala entries in arranging loans, expenses, gifts. During the year Shri Amar G. Bajaj, Prop. Of Mohan Brothers, 712, Linking Road, Khar (W), Mumbai-52 was the beneficiary of such loans, expenses and gifts. The modus-operandi was to collect cash from the parties to whom loans were given and cash was deposited into account of Shri Nitin 1. Rugani and cheques were issued to the beneficiary of the loan transaction. In order to ensure that the money reached by cheques to the beneficiary Shri Nitin 1. Rugani kept blank cheques 28 of the third parties. The assessee Shri Amar G. Bajaj had taken benefit of such entries of loans, commission ad bill discounting of Rs. 8,00,000/-, 11,21,243/- and 9,64,739/- respectively. The assessment was completed u/s. 143(3) of the 1. T. Act on 31st March, 1998 by DCIT-Spl. Rg. 40, Mumbai. It is seen from records that the aforesaid points have not been verified in the assessment. I have therefore reason to believe that by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, income has escaped assessment within the meaning of proviso to Sec. 147 and explanation 2 (c)(i) of the income-tax Act, 1961."
7. In the light of the above mentioned reasons, in our considerate view, Section 147 and 148 are charter to the Revenue to reopen earlier assessments and are, therefore protected by safeguards against unnecessary harassment of the assessee. They are sword for the Revenue and shield for the assessee. Section 151 guards that the sword of Sec. 147 may not be used unless a superior officer is satisfied that the AO has good 29 and adequate reasons to invoke the provisions of Sec. 147. The superior authority has to examine the reasons, material or grounds and to judge whether they are sufficient and adequate to the formation of the necessary belief on the part of the assessing officer. If, after applying his mind and also recording his reasons, howsoever briefly, the Commissioner is of the opinion that the AO's belief is well reasoned and bonafide, he is to accord his sanction to the issue of notice u/s. 148 of the Act. In the instant case, we find from the perusal of the order sheet which is on record, the Commissioner has simply put "approved" and signed the report thereby giving sanction to the AO. Nowhere the Commissioner has recorded a satisfaction note not even in brief. Therefore, it cannot be said that the Commissioner has accorded sanction after applying his mind and after recording his satisfaction.
8. Hon'ble Delhi High Court in the case of' United Electrical Co. Pvt. Ltd. Vs CIT 257 has held that "the proviso to sub-section (1) of section 151of the 10 Act provides that after the expiry of four years from the end of the relevant assessment year, 30 notice under section 148 shall not be issued unless the Chief Commissioner or the Commissioner, as the case may be, is satisfied, on the reasons recorded by the Assessing Officer concerned, that it is a fit case for the issue of such notice. These are some in-builts safeguards to prevent arbitrary exercise of power by an Assessing Officer to fiddle with the completed assessment". The Hon'ble High Court further observed that "what disturbs us more is that even the Additional Commissioner has accorded his approval for action under section 147 mechanically. We feel that if the Additional Commissioner had cared to go through the statement of the said parties, perhaps he would not have granted his approval, which was mandatory in terms of the proviso to sub-section (1) of section 151 of the Act as the action under section 147 was being initiated after the expiry of four years from the end of the relevant assessment year. The power vested in the Commissioner to grant or not to grant approval is coupled with a duty. The Commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. 31
The said power cannot be exercised casually and in a routine manner. We are constrained to observe that in the present case there has been no application of mind by the Additional Commissioner before granting the approval".
9. The observations of the Hon'ble High Court are very much relevant in the instant case as in the present case also the Commissioner has simply mentioned "approved" to the report submitted by the concerned AO. In the light of the ratios/observations of the Hon'ble High Court mentioned hereinabove, we have no hesitation to hold that the reopening proceedings visa-vis provisions of Sec. 151 are bad in law and the assessment has to be declared as void ab initio. Ground No. 1 of assessee's appeal is allowed.
10. As we have held that the reassessment is bad in law, we do not find it necessary to decide other issues which are on merits of the case."
10.3 No contrary judgment or order is brought to our notice. This being a Co-ordinate Bench order, we are required to follow the same.
3210.4 The decision cited by the Ld. DR does not pertain to the issue of contravention of provisions of S. 151 of the Act. These judgments are on other aspects relating to reopening. Thus respectfully following the decision of the Coordinate Bench in the matter, we hold that the reopening is bad in law for the reason that the Ld. CIT(A), Delhi has not recorded his satisfaction as contemplated u/s. 151 of the Act."
(D) ITAT, Mumbi Bench 'E' in the case of Amarlal Bajaj vs. ACIT reported in (2013) 37 taxmann.com 7 (Mumbai -Trib) it has been held as under:-
"5. We have considered the rival submissions and carefully perused the orders of the lower authorities and also the material evidences brought on record from both sides. We have also the benefit of perusing the order sheet entries by which the Ld. CIT has granted sanction. Let us first consider the relevant part of the provisions of Sec. 151 of the Act. 151. (1) In a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 [by an Assessing Officer, who is below the rank of Assistant Commissioner [or Deputy Commissioner], unless the [Joint] Commissioner is satisfied on the reasons recorded 33 by such Assessing Officer that it is a fit case for the issue of such notice] : Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice. (2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of [Joint] Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the [Joint] Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.] [Explanation.--For the removal of doubts, it is hereby declared that the Joint Commissioner, the Commissioner or the Chief Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.]"
6. A simple reading of the provisions of Sec. 151(1) with the proviso clearly show that no such notice shall be issued unless the Commissioner is satisfied on the 34 reasons recorded by the AO that it is a fit case for the issue of notice which means that the satisfaction of the Commissioner is paramount for which the least that is expected from the Commissioner is application of mind and due diligence before according sanction to the reasons recorded by the AO. In the present case, the order sheet which is placed on record show that the Commissioner has simply affixed "approved" at the bottom of the note sheet prepared by the ITO technical. Nowhere the CIT has recorded his satisfaction. In the case before the Hon'ble Supreme Court (supra) that on AO's report the Commissioner against the question "whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148 merely noted "
Yes " and affixed his signature there under. On these facts, the Hon'ble Supreme Court observed that the important safeguards provided in sections 147 and 151 were lightly treated by the officer and the Commissioner. The Hon'ble Supreme Court further observed that the ITO could not have had reason to believe that income had escaped assessment by reasons of the appellant- firm's failure to disclose material facts and if the Commissioner had read the report carefully he could not have come to the conclusion that this was a fit case for 35 issuing a notice under section 148. The notice issued under section 148 was therefore, invalid. It would be pertinent here to note the reasons recorded by the AO. "Intimation has been received from DCIT-24(2), Mumbai vide his letters dt. 22nd February, 2002 that one Shri Nitin J. Rugmani assessed in his charge had arranged Hawala entries in arranging loans, expenses, gifts. During the year Shri Amar G. Bajaj, Prop. Of Mohan Brothers, 712, Linking Road, Khar (W), Mumbai-52 was the beneficiary of such loans, expenses and gifts. The modus-operandi was to collect cash from the parties to whom loans were given and cash was deposited into account of Shri Nitin J. Rugani and cheques were issued to the beneficiary of the loan transaction. In order to ensure that the money reached by cheques to the beneficiary Shri Nitin J. Rugani kept blank cheques of the third parties. The assessee Shri Amar G. Bajaj had taken benefit of such entries of loans, commission and bill discounting of Rs. 8,00,000/-, 11,21,243/- and 9,64,739/- respectively. The assessment was completed u/s. 143(3) of the I.T. Act on 31st March, 1998 by DCIT- Spl. Rg. 40, Mumbai. It is seen from records that the aforesaid points have not been verified in the 36 assessment. I have therefore reason to believe that by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, income has escaped assessment within the meaning of proviso to Sec. 147 and explanation 2 (c)(i) of the income-tax Act, 1961."
7. In the light of the above mentioned reasons, in our considerate view, Section 147 and 148 are charter to the Revenue to reopen earlier assessments and are, therefore protected by safeguards against unnecessary harassment of the assessee. They are sword for the Revenue and shield for the assessee. Section 151 guards that the sword of Sec. 147 may not be used unless a superior officer is satisfied that the AO has good and adequate reasons to invoke the provisions of Sec. 147. The superior authority has to examine the reasons, material or grounds and to judge whether they are sufficient and adequate to the formation of the necessary belief on the part of the assessing officer. If, after applying his mind and also recording his reasons, howsoever briefly, the Commissioner is of the opinion that the AO's belief is well reasoned and bonafide, he is to accord his sanction to the issue of notice u/s. 148 of 37 the Act. In the instant case, we find from the perusal of the order sheet which is on record, the Commissioner has simply put "approved" and signed the report thereby giving sanction to the AO. Nowhere the Commissioner has recorded a satisfaction note not even in brief. Therefore, it cannot be said that the Commissioner has accorded sanction after applying his mind and after recording his satisfaction.
8. Hon'ble Delhi High Court in the case of United Electrical Co. Pvt. Ltd. Vs CIT 258 ITR 317 has held that "the proviso to sub-section (1) of section151of the Act provides that after the expiry of four years from the end of the relevant assessment year, notice under section 148 shall not be issued unless the Chief Commissioner or the Commissioner, as the case may be, is satisfied, on the reasons recorded by the Assessing Officer concerned, that it is a fit case for the issue of such notice. These are some in-builts safeguards to prevent arbitrary exercise of power by an Assessing Officer to fiddle with the completed assessment". The Hon'ble High Court further observed that "what disturbs us more is that even the Additional Commissioner has accorded his approval for action under section 147 mechanically. We feel that if the 38 Additional Commissioner had cared to go through the statement of the said parties, perhaps he would not have granted his approval, which was mandatory in terms of the proviso to sub-section (1) of section 151 of the Act as the action under section 147 was being initiated after the expiry of four years from the end of the relevant assessment year. The power vested in the Commissioner to grant or not to grant approval is coupled with a duty. The Commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. The said power cannot be exercised casually and in a routine manner. We are constrained to observe that in the present case there has been no application of mind by the Additional Commissioner before granting the approval".
9. The observations of the Hon'ble High Court are very much relevant in the instant case as in the present case also the Commissioner has simply mentioned "approved" to the report submitted by the concerned AO. In the light of the ratios/observations of the Hon'ble High Court mentioned hereinabove, we have no hesitation to hold that the reopening proceedings vis-à-vis provisions of 39 Sec. 151 are bad in law and the assessment has to be declared as void ab initio. Ground No. 1 of assessee's appeal is allowed.
10. As we have held that the reassessment is bad in law, we do not find it necessary to decide other issues which are on merits of the case."
(E). Hon'ble High Court of Madhya Pradesh in the case of CIT vs. S. Goyanka Lime & Chemicals Ltd. reported in (2015) 56 taxmann.com 390 (MP) has held as under:-
"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 vs. Asstt. DIT (2000) 246 ITR 363 (MP), the same question has been considered by a Coordinate Bench of this Court and the following principles are laid down:-
"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 40 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 Commisisoner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material
8. If the case in hand is analysed on the basis of the aforesaid principle, the mechanical way of recording satisfaction by the Joint Commissioner, which accords sanction for issuing notice under section 148, is clearly unsustainable and we find that on such consideration both the appellate authorities have interfered into the matter. In doing so, no error has been committed warranting reconsideration."
(F.) Hon'ble Supreme Court of India in the case of CIT vs. S. Goyanka Lime & Chemical Ltd. reported in (2015) 64 taxmann.com 313 (SC) in the Head Notes has held that "Section 151, read with section 148 of Income Tax Act, 1961 - Income escaping assessment - Sanction for issue of notice (Recording of satisfaction) - High Court by impugned order held that where Joint Commissioner recorded satisfaction in mechanical manner and without application of mind to accord sanction for issuing notice under section 148, reopening of assessment was invalid
- Whether Special Leave Petition filed against impugned order was to be dismissed - Held, Yes (in favour of the Assessee)."
9. In view of above, I am of the considered view that the above legal issue is exactly the similar and identical to the issue involved in 41 the present appeal and is squarely covered by the aforesaid decisions of the Hon'ble Supreme Court of India, Hon'ble High Courts of Delhi & Madhya Pradesh & ITAT, Delhi & Mumbai. Hence, respectfully following the above precedents, I decide the legal issue in dispute in favor of the Assessee and against the Revenue and accordingly quash the reassessment proceedings being bad in law. Since I have already quashed the reassessment proceedings, as aforesaid, the other issue on merit are not being dealt with being academic in nature.
10. In the result, the appeal of the assessee is allowed.
Order pronounced on 01-03-2018.
Sd/-
(H.S. SIDHU) JUDICIAL MEMBER Dated : 01-03-2018 SR BHATANGAR Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A), New Delhi.
5.CIT(ITAT), New Delhi.
AR, ITAT NEW DELHI.