Income Tax Appellate Tribunal - Delhi
M/S. Pragati Vanijya Ltd., New Delhi vs Acit, New Delhi on 31 July, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'SMC' NEW DELHI
BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER
ITA No. 5096/Del/2014
ASSESSMENT YEAR: 2003-04
Pragati Vanijya Ltd. vs ACIT
129, Transport Centre Circle 14(1)
Rohtak Road New Delhi
New Delhi 110 029
PAN: AAACP 1685 P
(Appellant) (Respondent)
Appellant by Sh. Sanat Kapoor, Adv.
Respondent by Ms. Bedobani, Sr.DR
Date of Hearing 09.05.2017
Date of Pronouncement 31.07.2017
ORDER
This appeal filed by the assessee is directed against the order dated 27.06.2014 of the ld.CIT(A)-XVII, New Delhi relating to Assessment Year (A.Y.) 2003-04.
2. Facts of the case, in brief, are that the assessee is a company engaged in the business of providing loans and advances and inter corporate deposits. The original return of income was filed on 5.11.2003 declaring a total income of 1 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
Rs.29,99,190/-. Subsequently the Assessing Officer (AO) initiated proceedings under section 147 of the Income Tax Act, 1961 (the Act) for the impugned Assessment Year by recording the following reasons.
"Please refer to your letter dt. 16.4.2010 asking for the reasons for issue of notice u/s 148 of the IT Act, 1961. As desired, the reasons recorded for this purpose are reproduced below.
'Return of income was filed on 5.11.2003 declaring total income of Rs.29,99,190/- which was processed u/s 143(1) on 30.01.2004.' Information was received from the DIT (Investigation) that certain persons were indulged in providing accommodation entries/bogus share application money/bogus capital gains. In the course of enquiries before Investigation Wing these persons had provided the details of various persons to whom such accommodation/bogus entries were provided. Based on the enquiries made, the DIT has provided details of persons whom were beneficiary/entry operators of such accommodation/bogus entries in Delhi in the last 5-6 years. The Investigation Wing on the basis of enquiries conducted/information collected has sent the name and address of the bank accounts of the beneficiary and the value of entry taken from different persons giving the accommodation entry. The name of entry giver and bank 2 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
accounts through which the entry was given has also been informed by the Investigation Wing. One such beneficiary is M/s Pragati Vanijaya Ltd.
As per the report of Investigation Wing, M/s Pragati Vanijaya Ltd. has received accommodation entry amounting to Rs.11,25,000/- in the FY 2002-03 relevant to Assessment Year 2003-04 under the garb of share application money/share capital The details of which are as under. Beneficiary Beneficiar Beneficiary Value Instrument Date on Name of Bank Branch A/c no.
Name y Bank of entry no. by which account from of entry of entry
Bank Branch taken which entry hodler which giving giving
Name entry taken of entry entry bank account
taken giving given
account
Pragati Syndicate Dev Nagar 625000 141952 13.4.02 Tulip Corpn Paschim 52174
Vanijaya Bank Engg. P. bank Bihar
Ltd. Ltd.
Pragati Syndicate Dev Nagar 500000 141953 13.4.02 Tulip Corpn Paschim 52174
Vanijaya Bank Engg. P. bank Bihar
Ltd. Ltd.
In view of the above, I have reasons to believe that on account of failure on the part of the assessee to disclose truly and fully all the material facts necessary for assessment for the above A.Y. the income chargeable to tax to the extent of accommodation entry amounting to Rs.11,25,000/- has escaped assessment within the meaning of s.147 of the Act."
2.1. In response to the notice issued under section 148 of the Act the assessee filed a letter on 18th April,2010 stating that the return originally filed on 5.11.2003 may be treated as return 3 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
in response to the notice under section 148 of the Act. During the course of assessment proceedings the AO observed that the assessee has taken accommodation entry of Rs.11,25,000/- from one M/s Tulip Engineering Private Limited in the garb of share application money/ share capital. He, therefore, asked the assessee to furnish details in respect of share application/ share capital received from M/s Tulip Engineering Private Limited. The assessee furnished confirmation from one Mr.Raghubir Singh, authorised signatory/Director of M/s Tulip Engineering Private Limited, copy of ITR and balance sheet of M/s Tulip Engineering Private Limited for the A.Y. 2003-04 and 2004-05. It was further submitted that the amount has been received through cheque. 2.2. During the course of assessment proceedings the AO asked the assessee to produce the share applicant for his examination. Instead of producing the Director or Principal Officer of the applicant company, the assessee filed an affidavit of Shri Raghubir Singh, Director of M/s Tulip Engineering Private Limited. It was submitted that there is no binding provision in any law by which they can enforce the presence of 4 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
Director of M/s Tulip Engineering Private Limited. It was submitted that the AO can call for any information from him directly. The AO observed that notice under section 131 of the Act was issued to director of M/s Tulip Engineering Private Limited which was sent to him as per address given by the assessee. But the notice could not be served through the Inspector for which the notice was served through affixture. However, none appeared on that date. This was again confronted to the assessee. However, the assessee expressed its inability and submitted that they have already given the address of the company and affidavit and confirmation of the director in support of their claim. The relevant information was also furnished.
2.3. However, the AO was not satisfied with the explanation given by the assessee in view of the non production of the director of the share applicant company and made addition of Rs.11,25,000/- u/s 68 of the I.T. Act, 1961 as unexplained cash credit.
3. Before the Ld.CIT(A) apart from challenging the addition on merits the assessee also challenged the validity of the 5 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
reopening of assessment proceedings. Based on various documents filed by the assessee the Ld.CIT(A) called for remand report from the AO. After confronting the same the Ld.CIT(A) upheld the validity of the re-assessment proceedings as well as the addition of Rs.11,25,000/- made by the AO. So far as the validity of the re-assessment proceedings are concerned, the Ld.CIT(A) held that there are sufficient reasons for the AO to believe that the income had escaped assessment for which proceedings were initiated after recording reasons. Relying on various decisions, he held that it has been clearly held that formation of belief by the Assessing Officer is within the realm of subjective satisfaction and it is not necessary for the AO to conclusively prove the escapement of income before initiating proceedings under section 147 of the Act. Accordingly he held that the AO had reason to believe that income has escaped assessment and he was within his competence to invoke the powers contained in section 147 to initiate reassessment of the income of the assessee.
4. So far as the additions sustained by him on merit is concerned, he observed that the enquiries conducted by the 6 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
AO establishes the fact that identity and credit worthiness of the company was not proved and the genuineness of the transaction was also not established. Despite issue of summons nobody appeared putting doubt on their identity. At no point of time the appellant was able to produce any person from M/s Tulip Engineering Private Limited. The assessee has clearly failed to discharge the onus cast on him. He further observed that the income of M/s Tulip Engineering Private Limited was only Rs.231/-, the bank account produced by assessee shows that the opening balance was also not substantive. On 27.3.2002 Rs.45 lakhs was deposited and withdrawn on the same day, on 31.3.2002 Rs.2,70,000/- and Rs.4,30,000 was deposited and Rs.6,70,000/- withdrawn on the same day. This kind of transaction is indicative of typical traits of entry operators. In view of the above and in absence of inability of the assessee to produce the share applicant to prove the identity, genuineness and creditworthiness, he held that the action of the AO in making the addition is justified.
5. Aggrieved with such order of the Ld.CIT(A) the assessee is in appeal before the Tribunal with the following grounds. 7
ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
1. That the CIT(A) has erred on facts and in law In upholding the notice issued and the subsequent proceedings u/s 148 . The notice issued u/s 148 is illegal, bad in law and without jurisdiction and the subsequent order passed u/s 143(3) and 147 is also illegal, bad in law and without jurisdiction.
2. That the notice u/s 148 has been issued/signed without recording reasons as required under the law; hence the notice u/s 148 is illegal, bad in law and without jurisdiction.
3. That the CIT(A) has grossly erred In law and on facts in upholding the issuance of notice u/s 148; despite the fact that the AO mechanically and without application of mind incorporated the information received from investigation wing as reasons for issue of a notice u/s 148. Further, the reasons recorded are factually incorrect. vague and based on surmises and conjectures and guesswork.
4. That the CIT (A) failed to consider that the appellant was not confronted with and supplied the report in respect of affixture of notice u/s 131 of the Income Tax Act, 1961 and it is not a valid service.
5. That the CIT(A) has in view of the facts and circum lances of the case erred on facts and in law in upholding the impugned assessment u/s 143(3) /147 dated 23.12.2012 assessing the income at Rs 41,24.190/-.
6. That the CITCA) has in view of the facts and circumstances of the case erred on facts and in law in upholding the addition of Rs.11.25.000/- on account of share application money received during the year.
7. That the CITCA) has failed to appreciate that the report of the inspector was never confronted to the assessee and he was not allowed to be cross examined; hence the addition made on the basis of said report is illegal and bad in law.
8
ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
8. That the CIT(A) has grossly erred in ignoring and misinterpreting the important facts of the stand taken by the assessee qua the amount of Rs.11,25,000/- and the CIT(A) also erred in ignoring the well settled position of law on the issue.
9. That the CIT(A) has grossly. erred in upholding the additions notwithstanding the fact that the assessee has discharged its burden of proof u/s 68 of the Act.
10. That the CIT(A) has grossly erred in ignoring and misinterpreting the facts available on record and has passed the order based on guesswork and surmises and conjectures.
11. That the various observations made by the CIT(A) in the appellate order are illegal, contrary to facts on record and based on surmises and conjectures.
12. That the evidence and explanation given by the appellant and the material available on record have not been properly considered and judiciously interpreted.
13. That the additions have been made on basis of mere conjectures and contrary to facts and evidence on record justified by any material on record.
6. The ld.Counsel for the assessee referring to the notice u/s 148 of the Act issued by the A.O. submitted that there is no independent application of mind by the AO while recording reasons and he has reopened the assessment only on the basis of information received from the investigation wing. Referring to the decision of Honorable Delhi High Court in the case of Principal CIT vs G&G Pharma India Limited reported in 384 ITR 9 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
147 he submitted that the Hon'ble High Court in the said decision has held that in absence of any independent application of mind by the Assessing Officer, assessment cannot be re-opened on the basis of information received from Directorate of Investigation.
6.1. Referring to the decision of Hon'ble Delhi High Court in the case of Signature Hotels P.Ltd. vs. ITO reported in 338 ITR 51 he submitted that the Hon'ble High Court in the said decision has held that information received from the DIT (Inv.) that amount received by the assessee from other company was nothing but accommodation entry, but the assessee was beneficiary was not sufficient to reopen the assessment when the AO did not apply his own mind to the information received. 6.2. Referring to the decision of the Coordinate Bench of the Tribunal in the case of Sonia Chowdhry vs. ITO in ITA nos. 2036 and 2037/Del/10 order dt. 7th October, 2016 for the Assessment Year 2002-03 and 2003-04 he submitted that following the above two decisions the Tribunal has quashed the reassessment proceedings. He accordingly submitted that this being a covered matter in favour of the assessee by the 10 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
decisions of Jurisdictional High Court as well as the decision of the Coordinate Bench of the Tribunal the re-opening proceedings should be declared as null and void. 6.3. So far as the merit of the case is concerned, he submitted that the assessee has filed full details to prove the identity, genuineness and credit worthiness of the payer. The assessee had given the address of the share applicant company. The AO could have independently summoned and recorded the statement of the Director of the share applicant company, which he failed to do. He accordingly submitted that the addition on merit also should be deleted.
7. The Ld.D.R. on the other hand strongly supported the order of the Ld.CIT(A). Referring to various decisions she submitted that Certificate of Incorporation, PAN etc. are not sufficient for the purpose of identification of the share holder when there is material to show that the share holder was a paper company and not a genuine investor. Relying on various decisions, the ld. DR submitted that the order of the Ld.CIT(A) be upheld on both the issues.
11
ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
8. The Ld.Counsel for the assessee in his rejoinder submitted that under identical facts the ld.CIT(A) has accepted Rs.11,25,000/- received as share application money from the said company in the preceding year and the revenue is not in appeal.
9. I have considered the rival arguments made by both the sides, perused the orders of the authorities below and the paper book filed on behalf of the assessee. I find the A.O. on the basis of information received from the Investigation Wing of the department that the assessee has received bogus share application money, reopened the assessment under section 147 by issuing notice under section 148 of the Act. During the course of assessment proceedings despite issue of summons none appeared on behalf of the share applicant company and only a confirmation was filed by the said company. Despite opportunity given by the AO the assessee also did not produce the director of the said share applicant company for which AO made addition of Rs.11,25,000/- to the total income of the assessee under section 68 of the Act.
12
ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
9.1. I find before the Ld.CIT(A) the assessee took a ground that the reassessment proceedings initiated by the AO is void ab initio since the AO has not applied his mind independently and only on the basis of information received from the Investigation Wing issued notice under section 148 of the Act. I find the Ld.CIT(A) upheld the order of the AO and dismissed the appeal filed by the assessee on both the grounds. It is the submission of the Ld.Counsel for the assessee that in view of the decisions of the jurisdictional High Court in the case of G&G Pharma India Limited (supra) and Signature Hotels Private Limited (supra), the reopening of assessment is void ab initio since the AO did not apply his own mind to the information received from the investigation wing that amount received by the assessee from the other company was nothing but an accommodation entry and the assessee is a beneficiary. It is the submission of the Ld.DR that the material from the investigation wing constitutes material and reopening on the basis of such information from the investigation wing has to be constituted as valid information for reopening of assessment. 13
ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
9.2. I find an identical issue had come up before the Hon'ble Delhi High Court in the case of Pr.CIT vs. G&G Pharma (supra) wherein the Hon'ble High Court had quashed the reassessment proceedings initiated on the basis of information obtained from the investigation wing on the ground that AO has not applied his mind to the material before him to prove that he had reasons to believe that income had escaped from assessment. The relevant observation from para 12 to 15 is 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 14 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: "it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries". In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case.
13. Mr.Sawhney took the Court through the order of the CIT(A) to show how the CIT(A) discussed the materials produced during the hearing of the appeal. The Court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT(A) 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 15 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
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."
9.3. I find the Hon'ble Delhi High Court in the case of Signature Hotels Ltd. (supra) has also taken similar view. The relevant observation of Hon'ble High Court from para 14 onwards read as under.
"14. The first sentence of the reasons states that information had been received from Director of Income-Tax (Investigation) that the petitioner had introduced money amounting to Rs.5 lacs during financial year 2002-03 as per the details given in W.P. (C) NO. 8067/2010 Page 12 Annexure. The said Annexure, reproduced above, relates to a cheque received by the petitioner on 9th October, 2002 from Swetu Stone PV from the bank and the account number mentioned therein. The last sentence records that as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary.
15. The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information 16 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
referred to is extremely scanty and vague. There is no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the W.P. (C) NO. 8067/2010 Page 13 information received from the Director of Income-Tax (Investigation) and arrive at a belief whether or not any income had escaped assessment.
16. It may be noted here that a company by the name of Swetu Stone Pvt. Ltd. had applied for and was allotted shares in the petitioner company on payment by cheque of Rs.5 lacs. As noticed above, in the Annexure the name of the company/account holder is mentioned as Swetu Stone PV. The same is also mentioned in the undated reasons mentioned above.
17. In the counter affidavit it is stated that M/s Swetu Stone Pvt. Ltd. had applied for allotment of shares worth Rs.5 lacs and the same were allotted by the petitioner. It is further stated that statements of Mahesh Garg and Shubhash Gupta were recorded by the Director of Income-Tax (Investigation) and on the basis of the statements they have come to the conclusion that the said persons were entry operators. Copy of the statements of Mahesh Garg and Shubhash Gupta have not been placed on record by the 17 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
respondent. The petitioner, has, however, enclosed copy of statements of Mahesh Garg and Shubhash Gupta recorded on different dates. The said persons W.P. (C) NO. 8067/2010 Page 14 have not specifically named the petitioner though other parties have been named and details have been given and it is stated that they were provided accommodation entries. However, it is stated that the entries were made by giving cheque/DD/PO after receiving cash and sometimes expenses entries were provided. The reasons recorded by the Assessing Officer do not make reference to any statement of Mahesh Garg or Shubhash Gupta. This may not also be necessary, if the statements were on record and it is claimed and prima facie established that they were examined by the Assessing Officer before or at the time of recording reasons. On the other hand, in the present case, information as enclosed as Annexure, has been referred. This is the only material relied upon by the Assessing Officer. The said Annexure has been quoted above. In this connection, we may notice that M/s Swetu Stone Pvt. Ltd. is an incorporated company and the petitioner has pleaded and stated that the said company has a paid-up capital of Rs.90 lacs. The company was incorporated on 4th January, 1989 and was also allotted a permanent account number in September, 2001. To this extent, there is no dispute. In these circumstances, we feel the judgments of the Delhi High Court in Commissioner of Income W.P. (C) NO. 8067/2010 Page 15 Tax versus SFIL Stock Broking Limited, [2010] 325 ITR 285 (Delhi) and Sarthak Securities Company Private Limited versus Income Tax Officer, 2010 (329) ITR 110 (Delhi), in which CIT versus Lovely Exports (P) Limited, (2009) 216 CTR 195 (SC) has been applied and followed, are applicable. We may notice here that the respondent in their counter affidavit have stated that Swetu Stone Pvt. Ltd. is unidentifiable and, 18 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
therefore, the aforesaid decisions should not be applied and the ratio of the decision dated 7th January, 2011 in Writ Petition (Civil) No. 7517/2010, AGR Investment Limited versus Additional Commissioner of Income Tax and Another should be applied. In the said decision, decisions in the case of Sarthak Securities Company Private Limited (supra) and SFIL Stock Broking Limited (supra) was distinguished by giving the following reasons:
"22. ....In SFIL Stock Broking Ltd. (supra), the bench has interfered as it was not discernible whether the assessing officer had applied his mind to the information and independently arrived at a belief on the basis of material which he had before him that the income had escaped assessment. In our considered opinion, the decision rendered therein is not applicable to the factual matrix in the case at hand. In the case of Sarthak Securities Co. Pvt. Ltd. (supra), the Division Bench had noted that certain companies W.P. (C) NO. 8067/2010 Page 16 were used as conduits but the Assessee had, at the stage of original assessment, furnished the names of the companies with which it had entered into transaction and the assessing officer was made aware of the situation and further the reason recorded does not indicate application of mind. That apart, the existence of the companies was not disputed and the companies had bank accounts and payments were made to the Assessee company through the banking channel. Regard being had to the aforesaid fact situation, this Court had interfered.
Thus, the said decision is also distinguishable on the factual score."
18. The facts indicated above do not show that M/s Swetu Stone Pvt. Ltd. is a non-existing and a fictitious 19 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
entity/person. Decision in AGR Investment Limited (supra), therefore, does not help the case of the respondent.
19. For the reasons stated above, the present writ petition is allowed and writ of certiorari is issued quashing the proceedings under Section 148 of the Act. In the facts of the case, there will be no order as to costs." 9.4. I find under identical circumstances the Ld.CIT(A) has accepted the share application money of Rs.11,25,000/- in the A.Y. 2002-03 and the revenue is not in appeal against the order of the Ld.CIT(A) in deleting the addition of Rs.11,25,000/- made by the A.O. in the order passed u/s 148 of the Act. 9.5. The various decisions relied by the Ld.DR are not applicable to the facts of the present case and are distinguishable. In all those cases either false evidences were adduced by the assessee to give a colour of genuineness to bogus entries through bank accounts or donor's details were not given to substantiate that the shareholder was not a paper company or not a genuine investor. In this view of the matter I set aside the order of Ld.CIT(A) on the issue of validity of issue of notice u/s 148 in absence of application of own mind by the AO. Since the assessee succeeds on this legal issue the 20 ITA 5096/Del/2014 Assessment Year: 2003-04 Pragati Vanijya Ltd.
grounds on merit are not being adjudicated, being academic in nature.
10. In the result appeal filed by the assessee is allowed.
Pronounced in the open court on 31.07.2017.
Sd/-
(RK PANDA) ACCOUNTANT MEMBER Dt. 31st July, 2017.
* Manga/Sujeet Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT //True Copy// ASSISTANT REGISTRAR ITAT, NEW DELHI 21