Income Tax Appellate Tribunal - Raipur
Mahavir Moulds India Private Limited, ... vs Income-Tax Officer-3(1), Raipur, ... on 12 July, 2024
आयकर अपीलीय अिधकरण, रायपुर ायपीठ, रायपुर
IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR
ी रिवश सूद, ाियक सद एवं ी अ ण खोड़िपया, लेखा सद के सम ।
BEFORE SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM
(ITA No. 85, 86, 87, 88, 89/RPR/2024)
(Assessment Year: 2011-12, 2012-13, 2013-14, 2014-15 & 2015-16)
Mahavir Moulds India Pvt. Ltd., V Income Tax Officer 3(1),
27/125, New Shanti Nagar, Raipur S Central Revenue Building, Third Floor,
Chhattisgarh, 492001 Civil Lines, Raipur
PAN: AADCM5764F
(अपीलाथ /Appellant) . ( यथ / Respondent)
.
िनधा रती क ओर से /Assessee by : Shri Ravi Agrawal, CA
राज व क ओर से / Revenue by : Shri Satya Prakash Sharma, Sr. DR
सुनवाई क तार ख / Date of Hearing : 10.05.2024
घोषणा क तार ख / Date of : 12.07.2024
Pronouncement
आदे श / O R D E R
Per Arun Khodpia, AM:
The captioned appeals are filed by the aforesaid assessee against the separate orders of Commissioner of Income Tax (Appeals), Raipur-3 (in short "Ld. CIT(A)"), for Assessment Years 2011-12, 2012-13, 2013-14, 2014- 2015 and 2015-2016, dated 17.01.2024, u/s 250 of the Income Tax Act, 1961(in short "The Act"), which in turn have arises from the orders of Income Tax Officer, Ward-3(1), Raipur (in short "Ld. AO"), passed u/s 143(3) r.w.s. 147, separately for aforesaid assessment years, all dated 26.12.2018. 2
ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
2. Since the grounds of appeal in the present case inter alia are assailed against the identical controversies involved in all the aforesaid appeals irrespective of the quantum of addition, having common, interconnected and inextricably interwoven issues, therefore, for the sake of brevity, all these appeals of the aforesaid assessee are heard together and being disposed of under this common order.
3. Appeal No. ITA 85/RPR/2024 for the assessment year 2011-12 has been taken up as the lead case and our adjudication and decision therein shall apply, mutatis mutandis to the remaining four appeals pertaining to assessment year 2012-13 to 2015-16.
4. The grounds of appeal raised in the ITA No. 85/RPR/2024 are extracted as under:
1) The order of CIT(A) is illegal, bad in law and void-ab-initio.
2) On facts and in the circumstances of the case and in law, CIT(A) has erred in holding that AO had validly assumed jurisdiction to initiate proceeding u/s 147 in respect of income which was already offered for taxation and as such there was no escapement of income within the meaning of section 147.
3) On facts and in the circumstances of the case and in law, CIT(A) has erred in sustaining/ confirming re-assessment order passed by the AO in spite of the 3 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
fact that re-assessment order passed by the AO is illegal as much as it has been passed without complying with the rules of natural justice and without following mandatory provisions of law.
4) On facts and in the circumstances of the case and in law, CIT(A) has erred in confirming action of AO in initiating proceeding u/s 147 on the basis of borrowed satisfaction.
5) Without prejudice to ground nos. I to 4, on facts and in the circumstances of the case and in law, CIT(A) has erred in confirming action of the AO in making an addition of Rs. 55,00,000/- as unexplained cash credit u/s 68 on account of commission received by the assessee company, without appreciating the facts of the case properly and judicially. The addition made by the AO is arbitrary and not justified as unexplained credit u/s 68.
6) Without prejudice to ground nos. I to 4, on facts and in the circumstances of the case and in law, CIT(A) has erred in confirming action of AO in assessing commission income as unexplained cash credit u/s 68 in the year of receipt in spite the fact that this provision is applicable in the year of credit of relevant sum in the books of account.
7) Without prejudice to ground nos. I to 4, on facts and in the circumstances of the case and in law, CIT(A) has erred in confirming action of AO in assessing commission income of Rs. 1,99,00,000/- shown in the Profit and Loss Account as per mandatory Mercantile system of accounting as unexplained cash credit u/s 68 on the basis of cash system of accounting inspite of the fact that assessee company is consistently following Mercantile system of accounting in compliance with provisions of section 145(1) of the Income-tax Act' 1961 and section 209(3) of the Companies Act, 1956 and he himself assessed other receipts shown in Profit and Loss Account on Mercantile system of accounting.
8) Without prejudice to ground nos. 1 to 4, on facts and in the circumstances of the case and in law, CIT(A) has erred in confirming action of AO in making 4 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
addition of Rs. 50,885/- by invoking section 69C for alleged bogus / inflated purchases from M/s Shiv Shakti Trading Co.
9) Without prejudice to ground nos. I to 4, on facts and in the circumstances of the case and in law, CIT(A) has erred in confirming action of AO in not allowing setoff of business loss/ unabsorbed depreciation with unexplained cash credit assessed u/s 68 and unexplained expenditure assessed u/s 69C by rejecting relevant CBDT circular no. 11/2019 dated 19.06.2019 (applicable up to AY 2016-17), decision of Hon'ble Kerala High Court in case of "Bhima Jewellers Vs. CIT in ITA No. 15 of 2021 dt. 25.08.2022", decision of Hon'ble ITAT, Chandigarh Bench in case of "Mahaluxmi Food Industries vs. ITO in ITA No. 711/CHD/2022 cit. 01.06.2023", decision of Hon'ble ITAT, Mumbai Bench in case of "Innovative Construction P. Ltd. vs. ACIT in ITA No. 1084/MUM/2019 dt. I l . 12.2020" and decision of Hon'ble ITAT, Cochin Bench in case of "Heera Kerala Developers P. Ltd. Vs. ACIT in ITA No. 243/Coch/2019 dt. 30.06.2022"
clearly applicable to the facts of the case brought to his knowledge and by following decision of Hon'ble ITAT, Chennai Bench in case of "Deputy Commissioner of Income Tax Corporate Circle Vs. M/s Shree Karthik Papers Ltd. for A.Y. 2006-07 in ITA No. 325/MDS/2015" which was decided in different context and before issuing CBDT circular no. 11/2019 dated 19.06.2019.
10) The assessee reserves the right to add, amend, or withdraw any ground/grounds of appeal at the time of hearing.
5. Brief facts of the case are that the assessee is a Private Limited company, engaged in production of Ingot moulds using the pig iron, iron scrap, CTD Bar etc. The assessee had claimed to have received commission income of Rs.1.99 Crore during the FY 2010-11. As observed by the Ld. AO commission income shown by the assessee was partly received in the year 5 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
under consideration to the tune of Rs.55,00,000/- and remaining was shown as commission receivable in the Balance Sheet of the assessee under the head Current Assets. Such commission was received by the assessee from M/s Arion Commosales Pvt. Ltd. for which no explanation regarding nature and the source of such transaction could be furnished by the assessee before the Ld. AO. After deliberating upon this issue, which was the basis for reopening of assessment u/s 147 of the Act by the Ld. AO, based on information received from investigation wing of the department. Ld. AO made an addition of Rs.55,00,000/- and also another addition on account of bogus / inflated purchases u/s 69C of the Income Tax Act. Similar additions have been made by the Ld. AO in all the respective assessment years in accordance with the quantum of transactions.
6. Aggrieved by aforesaid additions, assessee preferred to appeal before the Ld. CIT(A). Wherein the case of the assessee was dismissed by the Ld. CIT(A).
7. Dissatisfied with the aforesaid order of Ld. CIT(A), the assessee has preferred an appeal before the Tribunal, which is under adjudication in the present case. The relevant observations of the Ld. CIT(A), for the sake of clarity are extracted as under:
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3.1.8 Considering the above discussion, the Ld. AO is justified in making addition of unexplained cash credit u/s. 68 of IT Act. Moreover, it has been gathered that huge chunk of cash was deposited in the bank account of M/s Gitanjali Book and subsequently transferred to the beneficiary assessee company M/s Mahavir Moulds India Pvt. Ltd.
Raipur in the form of accommodation entries after layering these cash through different shell entities like M/s Evergrow Suppliers Pvt. Ltd. and M/s Arion Commosales Pvt. Ltd. These concerns M/s Evergrow Suppliers Pvt. Ltd. and M/s Arion Commosales Pvt. Ltd are dummy, not carrying any business activity and are not found at their given address. During the financial year 2010-11, relevant to A.Y. 2011-12 you have received Rs. 55,00,000/- in the form of accommodation entry through the bank account number 0324200001482 of the dummy concern M/s Arion Commissars Pvt. Ltd. in the form of commission income.
Moreover, in this case enquiry was also made by the ADIT(Inv.), unit -3(4), Kolkata and an enquiry report was also furnished. In this case it has been noticed by the undersigned that huge chunk of cash was deposited in the bank account of M/s Gitanjali Book Depot (A/c No. 10650500398 with ICICI Bank shyam Bazar, Kolkata) and subsequently transferred to the beneficiary assessee company M/s Mahavir Moulds India Pvt. Ltd., Raipur in the form of accommodation entries after layering these cash through different shell entities M/s Evergrow Suppliers Pvt. Ltd. and M/s Arion Commosales Pvt. Ltd. These concerns M/s Evergrow Suppliers Pvt. Ltd. and M/s Arion Commosales Pvt. Ltd. are dummy, not carrying any business activity and are not found at their given address. Hence, the addition of Rs. 55,00,000/- as unexplained 7 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
cash credits said addition is confirmed and appeal on this ground is dismissed.
3.2.4 During the appellate proceedings, the appellant company furnished documentary evidence in form of books of account and Profit & Loss Account. It is stated by the assessee that the company has maintained it's book of account on mercantile system of accounting. Further it is also stated that the assessee company has maintained it's account with M/s Arion Commosales Pvt. Ltd. on the basis of mercantile system of accounting. The transaction of the assessee company with M/s Arion Commosales Pvt. Ltd. has been proved a same transaction by the AO during assessment stage. Now, Nothing has been brought on record regarding the genuineness and creditworthiness. The Ld. AO has rightly make the addition u/s 68 of the IT Act.
An income assessable under section 68 cannot be assessed under any particular head of income including income from other sources under section 56, the business loss assessed in the case of assessee cannot be set off against the amount taxed under section 68 as unexplained cash credits as addition u/s 68 cannot be pegged to any head of income. The aforesaid view is fortified by the Judgment of Hon'ble ITAT Chennai in the case of "Deputy Commissioner of Income Tax Corporate Circle Vs. M/s Shree Karthik Papers Ltd for A.Y. 2006-07, reported in ITA No 325/MDS./2015 by observing that set off of business loss from the unexplained cash credits u/s 68 is not permissible in view of harmonious and combined reading of section 71 , 72 and 32(2)."
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3.2.5 Considering the above discussion, the Ld. AO is justified in making addition of unexplained cash credit u/s. 68 of the Act. Hence, the addition cannot be set off against the amount taxed under section 68 as unexplained cash credits said addition is confirmed and appeal on this ground is dismissed.
3.3.4 I have examined the facts of the case during appellant proceeding. During assessment proceeding the Ld. AO. Therefore, a notice on 07.12.2018 requesting once again to furnish the ledger account of purchases along with the copy of all purchase bills from Shiv Trading co for F.Y. 2010-11.
However, on the same day Shri Atal Singh Hanspal, CA attended and furnished only the details of unsecured loan and everything else is again stated to be furnished in a few days. However, nothing has been furnished so far. Thus, it is observed that the assessee unable to give the requisite details and therefore the same has not been furnished so far. 3.3.5 During the appeal proceeding the issued notice on 25.09.2023 and fixed the hearing on or before 16.10.2023, the assessee was requested to furnish ground wise written submission, along with supporting documentary evidence(s), if any further, the assessee also requested to provide the information / clarification / submission / documents.
However, the assessee failed to furnished details regarding purchases bill regarding Shiv Trading Co.
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Thereafter, another notice issued on 14.12.2023 and fixed the hearing on 27.12.2023, requesting once again to provide the same. Thus, the assessee failed to furnished details regarding purchases bill regarding Shiv Trading Co.
3.3.6 Considering the above discussion, the AO is justified in making bogus purchase from Shiv Trading Co. Hence, the addition of Rs. 50,885/- u/s 69C said addition is confirmed and appeal on this ground is dismissed.
3.4.1 During the appellate proceedings, the appellant company submitted the reply, after examine the related reply and case records. There was a credible information with Ld. AO received by the Investigation Wing, Kolkata in the name of M/S Evergrow Suppliers Pvt. Ltd. And M/S Gitanjali Book Depot. The Ld. AO has recorded proper reason for with reopening the case u/s 147 of the Income Tax Act, 1961. This reopening has been done after taking proper approval from the appropriate authority. The approving authority has also applied his mind while giving the approval.
It is the case of the petitioner it was stated that there was no independent application of mind by the sanctioning authorities for according approval. Whilst it is the settled position in law that the sanctioning authority is required to apply his mind and the grant of approval must not be made in a mechanical manner, however, as noted by the Division Bench of the Calcutta High Court in Prem Chand Shaw (Jaiswal) v. Asstt. CIT [2016] 67 taxmann.com 339/238 Taxman 423/383 1 TR 597, the mere fact that 10 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
the sanctioning authority did not record his satisfaction in so many words would not render invalid the sanction granted under section 151(2) when the reasons on the basis on the basis of which sanction was sought could not be assailed and even an appellate authority is not required to give reasons when it agrees with the finding unless statute or rules so requires. 3.4.2 The decision in United Electrical Co. Pvt. Ltd. (supra), as relied upon by the petitioner is distinguishable from the present case, as in the said case, there was no material on record to provide foundation for Assessing Officer's reasons to believe. Therefore, it was held that the recording of the satisfaction by the AO was unjustified and without independent application of mind. However, there is no requirement to provide elaborate reasoning to arrive at a finding of approval when the Principal Commissioner is satisfied with the reasons recorded by the AO. Similarly, in Virbhadra Singh v. Deputy Commissioner Circle Shimla [2017] 88 taxmann.com 888 (HP) where the competent authority was in agreement with the reasons assigned by the Assessing Officer, so placed before him, which came to be considered and sanction accorded with proper application of mind, by recording "l am satisfied that it is a fit case for issuance of notice u/s 148", the issuance of notice under section 147/148 was held to be valid.
3.4.3 Thus in present case, the Id. AO has properly applied his mind on the basis of credible information received from Investigation wing, Kolkata. Thus, the contentions of the appellant are devoid of any merit. Further, various Hon'ble Courts have also held that the reassessment proceedings initiated on the basis of information provided by the other government agencies or Other Wing of the Income Tax 11 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
Department cannot be held as invalid. Hon'ble Delhi High Court in the case of PCIT Vs Paramount Communication (P.) Ltd. [2017] 79 taxmann.com 409 (Delhi)/[2017] 392 ITR 444 (Delhi) has held that information regarding bogus purchase by assessee received by DRI from CCE which was passed on to revenue authorities was 'tangible material outside record' to initiate valid reassessment proceedings. The SLP filed by the assessee against the said order has been dismissed by the Hon'ble Supreme Court which is reported in [2017] 84 taxmann.com 300 (SC). In similar situation, Hon'ble Gujarat High Court in the case of Aishwarya Dying Mills Pvt Ltd Vs DCIT [2018] 94 taxmann.com 430 (Gujarat) has held that AO's fishing inquiry is valid if he receives certain information from the Investigation Wing and forms an opinion before issuance of re- assessment notice. The SLP of the assessee in this case has been dismissed by the Hon'ble Supreme Court. Hon'ble Gujarat High Court in the case of Amit Polyprints (P.) Ltd. Vs DCIT [2018] 94 taxmann.com 393 (Gujarat) has held that reassessment proceedings were initiated on basis of information received from Investigation wing that assessee had received certain amount from shell companies working as an accommodation entry provider, reassessment could not be held unjustified. In the same case for the another year reported in [20171 78 taxmann.com 58 (Gujarat), Hon'ble Gujarat High Court has held that where material recovered in search of another person indicated that assessee had received bogus share applications through accommodation entries, since assessee was beneficiary, initiation of re-opening was justified. Hon'ble Gujarat High Court in the case of Aaspas Multimedia Ltd. vs DCIT [2018] 405 ITR 512 (Gujarat) has held that where reassessment was made on basis of information received from Principal DIT (Investigation) that assessee was beneficiary of accommodation entries by way of share application 12 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
provided by a third party, same was justified. In view of these discussions, the above contentions of the appellant are hereby rejected. 3.4.4 Considering the above discussion, the AO, initiation of reassessment by issue of notice u/s 148 and consequent reassessment order passed by AO as per provisions of Income Tax Act. Hence, the AO's initiation the notice u/s 148 and passed the re-assessment order as per the provisions of law and fully justified and appeal on this grounds No 4, 5 & 6 are dismissed.
8. At the outset, Learned Authorized Representative of the assessee, Shri Ravi Agrawal, CA (in short "Ld. AR"), have initiated his argument with the legal grounds in the present appeal i.e., Ground No 1 to 4, under which he challenged the validity of notice, reasons to believe and assessment completed u/s 147 & 148 of the Act. Multifold contentions raised by the Ld. AR are briefly submitted under a written note, the same is extracted as under:
MAHAVIR MOULDS INDIA PVT LTD AY 2011-12 to 2015-16 Challenging the validity of the notice issued u/s 148 and submission is many folds APPROVAL BY BOTH [In case of AY 2011-12 and AY 2012-13] Approval granted by competent authority is not in accordance with the provisions of section 151 and hence there is breach in compliance of section
151. 13
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In both these years, notice u/s 148 issued beyond 4 years. Therefore, as per section 151(1), the competent authority for granting approval is PCIT only. Refer page no 2-4 of PB-1- format for approval. [ Refer section 151 (1) of I.T. Act ] In both these years, both the authorities --JCIT & PCIT - have granted approvals.
In this case, as per section 151(1), approval should have been granted by PCIT alone but it has been granted by both.
It is settled law that if the statute requires something to be done in a particular manner, then such act has to be done in that manner alone and the same cannot be compromised in any manner whatsoever.
There is no statutory provision in section 151 that the power which is to be exercised by one authority, that can be exercised by another authority. That sub section (1) and (2) of section 151 are two different provisions. These provisions empower 2 different authorities to exercise their power in 2 different circumstances.
Reliance on Hon'ble Mumbai Bench of ITAT, in case of ACIT vs Bharti Axa Life Ins co. where your honor is co-author. [Page 223 to 258 of PB-2] The relevant page is 241, para 4.9.2 Proforma seeking approval in this case is at page no.231 of PB-2 - Read this Hon'ble Mumbai ITAT has held that it is a breach of requirement of section 151 and the sanction is invalid and quashed the proceedings. There are so many other judgments in which it has been categorically decided that if the statute requires something to be done in a particular manner, then such act has to be done in that manner alone and the same cannot be compromised in any manner whatsoever.
Refer page 281-284, (284) Delhi HC in case of SPL Siddhartha Ltd. In this case, the JCIT has no locus standi, because he is not competent to grant approval.
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The powers conferred on one authority CANNOT be exercised by another authority to whom such power has not been conferred for that specified circumstance.
Refer page 259-266 (265) Mumbai HC in case of Ghanshyam K.Khabrani and Page 267-271 (271)- Aquatic Remedies Respectfully submitted that departmental SLP in case of Aquatic Remedies has been dismissed by Hon'ble SC by holding that When the Statute mandates the satisfaction of a particular manner, then it has to be done in that manner only. (Page 273-274) Therefore this issue has attained finality Therefore, notice issued u/s 148 is bad in law as there is breach of section
151. Submission for - PROCEDURAL REQUIREMENT Departmental procedure cannot override the provision of law. Here provision of law stops JCIT to grant approval -- JCIT cannot. In the name of procedural requirement, there cannot be breach of law. Procedural requirement does not give concession to the department to deviate from strict legal compliance, more so when it involves jurisdiction. AO sent file to JCIT -- the moment JCIT grants approval thereon, the proceedings become invalid.
Later on, PCIT giving approval on it -- it is illegal because it is already approved by incompetent authority.
Later approval of PCIT cannot infuse life to something which has become illegal. Irregularity can be cured but illegality can not be cured -- settled law IN CONNECTION WITH "REASONS RECORDED BY AO" -
BORROWED SATISFACTION Refer page.4 of PB-1 -- reasons recorded 15 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
Here, the AO is referring to and talking all about the inquiry report of ADIT (Inv)Unit-3(4)-Kolkata.
It is NOWHERE in the reason as to what step the AO has taken by which he was satisfied that there is escapement of income.
It is clear that the reasons recorded by the AO is simply reproduction of the enquiry report of ADIT-Kol. In his own language.
Mere receipt of some information from Investigation wing will not amount to reason to believe that income chargeable to tax has escaped assessment. The AO is dutybound to make some enquiry of his own in furtherance of the enquiry report received from ADIT-Kol., AND there must be mention of "that enquiry" which the AO has made -- in the reasons recorded by the AO. It is NOWHERE in the reason.
When nothing has been done by AO of his own, then how he has formed any belief or he was satisfied that there is escapement of income. The crucial link between the information received and formation of belief is missing.
And therefore it is clear cut a case of borrowed satisfaction. For this, we rely on judgment of our own Bench in case of Shri Tarun Pugalia Jain vs ITO [Page 61-76 of PB-21 - relevant page is 67 & 68, para
9. -- read it -- your honor is the author of this judgment. Again Mumbai Bench of ITAT has held that where the AO has merely referred the information received from investigation wing and there is nothing in the reason on the basis of which it can be said that there was independent formation of belief by the AO that there was escapement of income. For this refer page no.77 to 88 -- Chetan Rajnikant Shah -- relevant page is 82 & 87.
In this case the reason is similar to the reasons given in the case of the assessee.
Observation of Hon'ble Mumbai ITAT -- " On perusal.... .... Our Bench has followed the judgment of Hon'ble SC in case of Anirudh Sinhji Karan Sinhji Jadeja vs state of Gujarat [1995, 5 SCC 302], in which it has been held that if the statutory authority has been vested with jurisdiction then he has to exercise it according to its own discretion. If the discretion is 16 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
exercised under the direction or in compliance with some other authorities' instruction, then it will be a case of failure to exercise discretion altogether. There is a reference of so many judgments -- Delhi HC -- Meenakshi overseas [89-106 of PB-2], G.G.Pharma India [117-122 of PB-2], RMG Polyvinyl [123-128 of PB2], [ page 127 -- para-12] SFIL Stock broking [129-134 of PB-2] Now refer page 5 of PB-1, it is the information received by AO from ADIT- Kolkota. Last para 5, last line ",FOR FURTHER NECESSARY ACTION AT YOUR END AS PER LAW"
This clearly shows that the AO has not applied his mind and he has acted in compliance with the instruction of some other authority. Therefore, it is a case of failure to exercise jurisdiction altogether. In all these cases, the AO has acted mechanically -- he did not apply his own mind -- he did not take any kind of step of his own -- and therefore HC has held that AO has acted on borrowed satisfaction and the assessment framed u/s 147 was quashed.
This way this is covered matter by our own Bench.
In the reason -- 3 rd line -.........it has been noticed by the undersigned that huge chunk...
"It has been noticed....." The AO has simply seen the information -- simply noticed the information -- it is NOWHERE as to what he did thereafter -- any inquiry or anything -- in furtherance of this information. ".......huge cash was deposited in the bank a/c of M/s Gitanjali Book Depot and subsequently transfer to beneficiary assessee..." -- it means AO has seen the bank a/c of Gitanjali Book Depot in which huge cash wash deposited and he has seen money transferring from Gitanjali Book Depot to Evergrow suppliers pvt ltd and from Evergrow suppliers to Arion Commosales pvt ltd. Were bank statements of Gitanjali Book depot, Evergrow suppliers and Arion Commosales available with the AO to form the belief? If these bank statements were available with the AO after issuance of notice u/s 148, then also the notice u/s 148 is invalid -- it is because nothing can be added/substituted in the original reasons recorded. [Hindustan Lever vs R.B. Wadekar 268 ITR 322 , page 25-30(29) of PB-2] 17 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
AO is alleging that Arion Commosales pvt ltd has received money from Evergrow suppliers pvt ltd and then it has given money to the assessee Mahavir Moulds.
It simply means in the bank statement of Arion Commosales, there is credit entry of Evergrow suppliers and then corresponding debit entry of Mahavir Moulds.
IS IT SO? -- Only material available with AO from Kolkata is Page 6 to 24 of PB-1.
FOR AY 2012-13 & AY 2015-16, REFER PAGE NO 2 OF PB-1 - FORMAT FOR GRANT OF APPROVAL - IT IS MENTIONED IN COLUMN 7 THAT AO HAS INVOKED EXP. 2, CLAUSE (a) TO SEC. 147 - IT APPLIES IN A CASE WHERE ASSESSEE HAS NOT FILED ITR.
IN THIS CASE, ASSESSEE HAS FILED ITR AND IT IS 0N RECORD. IT SHOWS NON-APPLICATION OF MIND & CASUAL APPROACH OF THE AO WHILE RE-OPENING THE CASE.
Further, AO has sought approval on wrong facts that assessee has not filed ITR.
Notice u/s 148 issued on wrong facts -- not valid -- Reliance on Ankita C. Choksey [411 ITR 207, Bom.] APPROVAL GRANTED BY PCIT MECHANICALLY - PCIT DID NOT APPLY HIS MIND Refer page 3 of PB-1 -- reasons recorded -- column 13 -- approval by PCIT. "Yes. I am satisfied on the reasons recorded by the AO. Sanction granted u/s 151 of the IT Act for issue of notice u/s 148 of the act."
Here, the PCIT acted mechanically in granting approval. He merely writes "Yes. I am satisfied on the reasons recorded by the AO" -- as if he was to put his signature only in the specified place. PCIT acted mechanically in order to discharge his statutory obligation and he also did not apply his mind.
PCIT was duty bound to see whether AO has conducted any independent enquiry of his own and how AO was satisfied.
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All these are in built safeguards provided in the Act. Yes. I am satisfied on the reasons recorded by the AO -- It does not show application of mind by PCIT before granting approval. This vitiates the very purpose of granting approval by competent authority. The sanctioning authority is expected to review the issue judiciously and then record his objective satisfaction before granting approval. It is missing in this case.
Once again reliance on Mumbai ITAT-- Bharti Axa -- relevant page is 231
-- approval granted by CIT and then page 246 -- para 4.9.3 -- read it. Refer page 249 - Reliance on MP HC -- CIT vs S. Goenka Lime and Chemicals -- Department's SLP dismissed by Hon'ble SC [ page 135-140] Reliance on jurisdictional HC i.e. CG HC also -- Maruti clean coal and power [141-148 of PB-2] -- relevant page is 147 para 21 & 22 -- CIT did not see as to how AO formed the belief and was satisfied that there is escapement of income.
Reliance on other judgments -- Delhi HC -- United electricals [149-156 of PB-2, relevant page is 155, para 19] FOR AY 2012-13 & 2015-16, REFER PAGE No 2 OF PB-I - FORMAT FOR GRANT OF APPROVAL - IT IS MENTIONED IN COLUMN 7 -
THAT AO HAS INVOKED EXP. 2, CLAUSE (a) TO SEC. 147 - IT APPLIES IN A CASE WHERE ASSESSEE HAS NOT FILED ITR.
IN THIS CASE, ASSESSEE HAS FILED ITR AND IT IS ON RECORD. IT SHOWS NON-APPLICATION OF MIND & CASUAL APPROACH OF THE PCIT GRANTING APPROVAL NON-SUPPLY OF MATERIAL USED AGAINST ASSESSEE TILL COMPLETION OF ASST.
AO used so many materials / enquiry reports etc. against the assessee. AO did not provide any material / enquiry report to assessee till completion of asst.
AO issued last SCN on 13/12/2018 (Refer page no.65-66 of PB-1) 19 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
Nothing was supplied by AO.
Reliance on Mumbai HC -- CIT vs Videsh Sanchar Nigam (Page 1-2 of PB-
2) Mumbai HC -- Shodiman Investment (Page 3-12 of PB-2) PCIT vs V. Ramaiah -- Karnataka HC (Page 13-18 of PB-2) Assessee requested AO supply the reasons/materials etc on 09/01/2019- page no..... PB- 1- after completion of assessment Non compliance of principle of natural justice CHALLENGE TO INVOCATION OF SECTION 147 IN THIS CASE Section 147 can be invoked only when income chargeable to tax has escaped assessment.
It simply means that AO has to make out a case that income chargeable to tax has escaped assessment.
In this case, AO is invoking Explanation 2, clause (b) -- refer approval page 2-3 of PB-1.
Read clause (b) -- It is not applicable.
Assessee has not understated the income. Assessee has shown the impugned amount as income in its books of accounts. The returned income is Nil. This fact can be borne out from the assessment order page no 1 para 1. The AO has made out the assessment without considering the impugned amount as income. As per AO, there is business loss of Rs.1.99 crores and income to be taxed u/s 68 is Rs.55.00 lakhs. He, then, did not allow the business loss to be set off against income which is taxed u/s 68.[ AO's order page 4, para 4] This is how AO has made out a case that there is income chargeable to tax which has escaped assessment.
For making out this case, AO has followed one old judgment of Hon'ble Guj. HC -- Fakir Md. Haji hasan [247 1TR 290] rendered in the year 2000 -- in which Guj. HC had held that income u/s 68 cannot be classified under any head of income as provided in section 14 and therefore no loss can be set off against income u/s 68.
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AO did not bother to consider that the same Guj. HC, in the year 2009 has reconsidered this issue in DCIT vs Radhe Developer's case [page 193-206, relevant page 205, para 14] and in the year 2013 in case of CIT vs Shilpa dyeing and printing [187-191, relevant page 190, para 9 & 10] Further, AO has relied upon Kerala HC judgment in case of Kerala Sponge iron, rendered in the year 2015.
Here also, AO did not bother to consider that the same Kerala HC in the year 2019 has reconsidered this issue in case of Vijaya Hospitality [179-185, relevant page is 184 para 14 & 15] and in the year 2022 in case of Bhima Jewellers [157 to 178, relevant page is 165 para 9 and page 176 para 13] The AO has followed the judgments which had been overruled by those High Courts themselves, before issuance of notice u/s 148. So, AO has issued notice under wrong presumption of law and on that count also, the notice is invalid.
Once the very basis on which notice u/s 148 was issued, does not exit, then reassessment proceedings is invalid.
ON MERITS OF THE CASE It is on record that assessee has credited Rs.1.99 crore during FY 10-11 (AY 11-12).
Assessee received commission income from Arion Commosales. It is for the reason that assessee is a company and require to follow mercantile system of accounting as per Companies Act.
AO cannot presume that there is no income to the assessee during FY 10-11. AO cannot treat Rs.1.99 crores in place of Rs.55 lakhs as unexplained income u/s 68 -- only amount credited is 55 lakhs.
Settled law that trading receipts which have been credited in the books of accounts and offered for taxation -- cannot be further taxed u/s 68. 21
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Judicial pronouncements
1. HARSHIL CHORDIA VS. ITO [ 298 ITR 0349 (RAJSTHAN HC)] [Page 153- 160 of PB]
2. ACIT vs. DEWAS SOYA LTD [ ITA NO 336/1NDORE/2012, INDORE BENCH OF ITAT]
3. CIT vs VISHAL EXPORTS OVERSEAS LTD [ TAX APPEAL NO.2471 of 2009, dt. 03/07/2012, Guj. HC] AO did not reject the books of accounts--
No inquiry of any sort was made by AO -- He simply rejected the income which the assessee had offered for taxation.
ALTERNATIVE GROUND-SET OFF OF BUSINESS LOSS WITH INCOME TAXED U/s 68 FOR AY 2011-12 and AY 2012-13 AO has already computed business loss of Rs.1.99cr for AY 2011-12 and similarly AYs also. [Ao's order page 4, para 4] -- Humbly submitted Hon'ble Bench should not improve upon assessment order. Business loss can be set off against income taxed u/s 68. Section 115BBE is effective from AY 2013-14 Guj. HC judgment Fakir Mohd. Haji Hasan came in the year 2000 It was overruled by Guj. HC in 2009 in Radhe Developers (205, para 14) and in 2013 in Shilpa Dyeing (191, para 10) Kerala HC -- Kerala Sponge Iron came in 2015 It was by overruled by Kerala HC in 2019 in Vijaya Hospitality (184 para 14, 15) and in 2022 in case of Bhima Jewellers (176, para 13). Strong reliance on D.P. Sandhu's case and United Commercial Bank Vs CIT -- refer page 205, para 4 of Radhe Developers [329 ITR 001] --
"suffice it to state that the Act does not envisage taxing any income under any head NOT specified in section 14 of the Act."
FOR AY 2013-14 to AY 2015-16 Income taxed u/s 68 is governed by section 115BBE for all 3 years. Loss can be set off against income to be taxed u/s 68 upto AY 2016-17 22 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
CBDT circular no.11/2019 dt.19/06/2019 (Page 285 of PB-2) - para 4 Raj. HC-- Aacharan Enterprises (211-212 of PB-2, para 3) Cochin ITAT (213-218 of PB-2, 218 para 6) Chandigarh ITAT (219-221 of PB-2, 220 para 3)
9. The first contention challenging the validity of notice u/s 148 raised by the Ld. AR was only for AY 2011-12 and 2012-13, that the approval granted by competent authority is not in accordance with the provisions of section 151 and hence there is a breach of compliance as mandated by the law. It was the contention that out of the batch of five years, two years i.e., AY 2011-12 & 2012-13 were picked up for reopening assessment beyond 4 years, therefore, the approval was to be granted by Ld. PCIT, who is the competent authority. However, the approval in these two years are granted by Ld. PCIT and also by the Range head i.e., Ld. JCIT, therefore, such approval which is to be accorded by only the competent authority i.e., Ld. PCIT, are not in the manner in which the statute requires. On this issue, it was the submission that statutory provisions allows the respective authority to grant the approval u/s 151 depending upon different circumstances, therefore, such powers cannot be exercised by the authority simultaneously, who is not vested with such authority. On this aspect, Ld. AR placed his reliance on the decision referred to in his written submissions (supra). 23
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10. Another contention raised by the Ld. AR was that the transactions which were taken up by the Ld. AO are as per information received regarding commission income received in the garb of accommodation entries by the assessee from bogus companies, as per the report of ADIT (investigation), Kolkata. It is further alleged by Ld. AR, that the reasons recorded by the Ld. AO are under borrowed satisfaction, the reasons recorded are simply reproduction of the inquiry report of ADIT, Kolkata. Ld. AO had merely received some information from the investigation wing and acted upon the same without making any independent inquiry, which should have been done, so as to form a valid reason to believe that income chargeable the tax has escaped assessment. To substantiate the contention qua the borrowed satisfaction of the Ld. AO at the time of recording the reasons to believe, Ld. AR drew our attention to the copy of reasons recorded dated 26.02.2018 at page no. 4 of the assessee's PB, the same for completeness of the facts have been extracted as under:
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11. Ld. AR further took us to page no. 25 of the assessee's PB comprising of a letter dated 03.12.2018 by the Ld. AO to the ADIT (Inv.) Unit
-3(4), Kolkata requesting to provide the cash / fund trail in the present case, so as to make use of such information in the assessment proceedings. In response, Ld. ADIT(Inv.), Kolkata had provided the information vide his letter dated 06.12.2018 showing trail of fund and the name of different beneficiaries along with relevant AY's and the quantum of accommodation entries each assessee has benefited with. Copies of letter from Ld. AO and response of the Ld. ADIT(Inv.), Kolkata are extracted as under: 26
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ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.28
ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.29
ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.30
ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.31
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12. Referring to the aforesaid documents, Ld. AR made a conjoint reading of the aforesaid documents, wherein Ld. AR had specifically pointed out the observations of Ld. AO from the reasons recorded, highlighting the lines that "On the basis of inquiry report of the ADIT(Inv.), Unit-3(4), Kolkata, it has been noticed by the undersigned that huge chunk of cash was deposited in the bank accounts of M/s Gitanjali Book Depot and subsequently transferred to the beneficiary assessee company M/s Mahavir Moulds India Pvt Ltd. Raipur in the form of accommodation entries after layering these cash through different shell entities M/s Evergrow Suppliers Pvt Ltd. and M/s Arion Commodities Pvt. Ltd.". Emphasizing upon the aforesaid notings in the reasons to believe, it was the assertion of Ld. AR that the aforesaid finding of the Ld. AO shows that he had verified the bank account of M/s Gitanjali Book Depot and had himself witnessed the entries therein reflecting huge amounts of cash deposited in the said bank account. Ld. AR further extended his argument with the allegation that such inference by the Ld. AO was totally misplaced and cannot be based on some material evidence, because as per the fact on record, the bank statement of M/s Gitanjali Book Depot were not available with the Ld. AO at the time of recording of the reasons, therefore, his observations in the reason that, it has been noticed by the undersigned, was without any basis or any cogent evidence before him, all the more it was just an inference drawn based on the report from investigation wing, which 32 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
itself was not having the supporting evidence in the form of bank accounts of the entities who were in the chain for executing such alleged bogus transactions. In order to substantiate the allegation that even the account statement of the M/s Gitanjali Book Depot are not available with the investigation wing, Kolkata, the Ld. AR, further taken us to page no.25 of the paper book, showing a letter from Ld. AO to ADIT(Inv.), Kolkata dated 03.12.2018 requesting for the certain details material for forming of reasons to believe, as discussed (supra). It was the submission that such request of the Ld. AO was responded by the investigation wing on 07.12.2018 i.e., after 09 months from the date of recording of the reasons (dated 26.02.2018), this information supplied by the investigation wing was also lacking the copy of bank statement of M/s Gitanjali Book Depot, therefore, it can be convincing the inferred that such details were not even was there in the possession investigation wing. To fortify such assertion, the Ld. AR, further advanced his argument submitting that since the bank statement of M/s Gitanjali Book Depot are not provided by the investigation wing, therefore, the Ld. AO have directly issued a letter u/s 133(6) of the Act, to ICICI Bank, Kolkata on 07.12.2018, requesting for account statement of M/s Gitanjali Book Depot for the FY 2010-11 to 2014-15, in response of which the branch manager has provided the copies of bank statement partially for the period 02.12.2010 to 13.04.2012. Copy of the letter by Ld. AO to ICICI Bank, Kolkata has been 33 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
furnished before us in the paper book of the assessee, which is extracted as under:
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13. Ld. AR further placed his contention that all the aforesaid documents and the events occurred indicates that the Ld. AO has recorded the reasons only on the basis of narrative information received from the investigation wing, Kolkata, which too was not complete in absence of supporting documents, so as to enable the Ld. AO to look into/ notice the veracity of the information which was the sole basis to form a valid belief leading to income escaped assessment. It was, therefore, the submission, that Ld. AO had taken an action entirely on the basis of half-baked information provided by the investigation wing of the department, therefore, the same has to be termed as borrowed satisfaction, which is not tenable under the settled principle of law. To support the contention, Ld. AR placed reliance on the following decision:
Shri Tarun Pugalia Jain vs ITO in ITA No. 272/RPR/2016 dated 21.02.22, Wherein ITAT, Raipur has dealt with the aforesaid issue under the support of decision of coordinate bench of ITAT, Mumbai in the case of Chetan Rajnikant Shah vs. ITO, wherein the issue was decided after elaborate discussion on the same based on interpretations of various Hon'ble High Courts, the relevant observations of Tribunal in the aforesaid case are as under:35
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9. On a perusal of the aforesaid 'reasons to believe', we find that the case of the assessee was reopened by the Assessing Officer u/s.147 of the Act on the basis of the information received by him from CIB that the assessee had during the year under consideration booked bogus purchases to the tune of Rs.9,53,492/- and thus, inflated his expenditure with a purpose of suppressing his taxable income. In our considered view, though there was material/information with the Assessing Officer on the basis of which he could have arrived at a bonafide belief that the income of the assessee chargeable to tax has escaped assessment, however, we find that he had failed to apply his mind to the material/information before him and had reopened the case of the assessee by merely referring to the information that was received by him from CIB. As per the settled position of law, the reopening of a concluded assessment presupposes application of mind by the Assessing Officer to the material/information before him, on the basis of which he arrives at a bonafide belief that the income of the assessee chargeable to tax had escaped assessment. However, in the case before us, the Assessing Officer had merely acted in a mechanical manner on the information that was received by him from the CIB, and without applying his mind to the said information/material had reopened the case of the assessee u/s.147 of the Act. In our considered view, the Assessing Officer by reopening the case of the assessee on the basis of a borrowed satisfaction, had thus, wrongly assumed jurisdiction u/s.147 of the Act, which, thus, on the said count itself on the said count itself cannot be upheld and is liable to be quashed. Our aforesaid conviction is supported by the judgment of the Hon'ble Supreme Court in the case of Anirudh Sinhji Karan Sinhji Jadeja Vs. State of Gujarat (1995) 5 SCC 302. In its aforesaid order, it was observed by the Hon'ble Apex Court that if a statutory authority has been vested with a jurisdiction, then, he has to exercise it according to its own discretion. It was observed that if the discretion is exercised under the direction or in compliance with some other authorities instruction, then it will be a case of failure to exercise discretion altogether. In our considered view, the cases reopened on the basis of information received from the other departments are also governed by the aforesaid principle of making an independent inquiry and recording of satisfaction by the Assessing Officer issuing notice under Section 148 of the Act. Our aforesaid view is 36 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
further supported by the order of a coordinate bench of the ITAT, "C" Bench, Mumbai in the case of Chetan Rajnikant Shah Vs. ITO, 24(1)(4), Mumbai, ITA No. 1948/Mum/2018, dated 22.02.2021. In its aforesaid order the Tribunal had after exhaustive deliberations observed as under :
"On a perusal of the aforesaid reasons to believe we find that though the A.O had referred to the material/information on the basis of which the case of the assessee was sought to be reopened under Sec. 147 of the Act i.e. the information received from the DGIT(Inv.), Mumbai, but then there is nothing discernible therefrom on the basis of which it could be gathered that there was any independent formation of a bonafide belief by the A.O that the income of the assessee chargeable to tax had escaped assessment. All that can be gathered from the aforesaid 'reasons to believe' is that the A.O by merely referring to the information received from the DGIT(Inv.), Mumbai, wherein it was conveyed that the assessee was a beneficiary of the accommodation entries given by two concerns, had observed, that he had a reason to believe that the income of the assessee in respect of such accommodation entries had escaped assessment. Although, the A.O had at the outset of his reasons observed that information was received from the DGIT(Inv.), Mumbai in respect of accommodation entries in the nature of sales, unsecured loans and share application money issued by the group companies controlled and managed by Shri Praveen Kumar Jain, however, he had not even done the bare minimum by pointing out the nature of the impugned accommodation entries that were allegedly stated to have been received by the assessee as a beneficiary. On a careful perusal of the 'reasons to believe', it can safely be gathered that the A.O had merely referred to the information that was received by him from the DGIT(Inv.), Mumbai and had dispensed with the statutory obligation that was cast upon him as regards formation of an independent and a bonafide belief that the income of the assessee chargeable to tax had escaped assessment. As observed by us hereinabove, the A.O by not even referring to the nature of the accommodation entries i.e as to whether they were accommodation entries in the nature of sales or unsecured loans or share application money, which as per the impugned information shared by the DGIT(Inv.), Mumbai were stated to have been received by the assessee as a beneficiary from Shri. Praveen Kumar Jain thus, clearly reveals that he had failed to apply his mind to the material on record to arrive a bonafide reason to believe that the income of the assessee chargeable to tax had escaped assessment. In sum and substance, a perusal of the aforesaid 'reasons to believe' though reveals a reference of the material/information received by the 37 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
A.O from the DGIT(Inv.), Mumbai on the basis of which the case of the assessee was sought to be reopened, but at the same time it is witnessed by a non-application of mind and failure to arrive at an independent and bonafide belief on the part of the A.O that the income of the assessee chargeable to tax had escaped assessment. Although, we are not oblivious of the fact that an A.O at the stage of recording the reasons to believe is not required to conclusively establish that the income of the assessee chargeable to tax had escaped assessment, but then, in the case before us we find that the A.O has not even recorded a satisfaction that as per him a case has been made out for issuing a notice under Sec. 148 of the Act. In our considered view, when the basic requirement that A.O must apply his mind to the material on record in order to have reasons to believe that the income of the assessee chargeable to tax had escaped assessment is found amiss, the reopening of the assessment cannot be held to be justified. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Delhi in the case of PCIT Vs. Meenakshi Overseas Pvt. Ltd. (2017) 395 ITR 677 (Delhi). In the aforesaid case, the Hon'ble High Court observed that the A.O had proceeded to send a notice u/s 147/148 of the Act solely on the basis of information received from the DIT(Inv.). It was noticed by the High Court that after writing about the nature of the impugned accommodation entry and without mentioning the nature of transaction which was effected for alleged accommodation entry as well as dispensing with the date of recording of the reasons, the A.O, without any further verification, examination or any other exercise had jumped to the conclusion that the assessee had received accommodation entries. The Hon'ble High Court in the backdrop of the facts involved in the case before them observed that as the crucial link between the information made available by the DIT (Investigation) to the A.O and the formation of belief was absent, the reassessment proceeding initiated against the assessee was rightly quashed by the Tribunal. The High Court while concluding as hereinabove observed that while the report of the Investigation Wing might constitute the material on the basis of which the A.O forms the reasons to believe, but the process of arriving at such satisfaction/belief cannot be a mere repetition of the report of the Investigation wing. As observed by the Hon'ble High Court, the reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that the income of the assessee chargeable to tax had escaped assessment. Also, a similar view was earlier taken by the Hon'ble High Court of Delhi in the case of PCIT Vs. G & G Pharma India Ltd. (2016) 384 ITR 147 (Del). In the case before the Hon'ble High Court, it was observed that the A.O in his reasons to believe 38 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
after setting out four entries which were 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 received from the Directorate of Investigation, had therein 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." In the backdrop of the aforesaid facts, it was observed by the Hon'ble High Court that it could not be gathered that as to whether the A.O had applied his mind to the material that he talks about since he did not describe what those material was. Observing, that without forming a prima facie opinion, on the basis of the aforesaid material, it was not possible for the A.O to have simply concluded that it was evident that the assessee company had introduced its own unaccounted money in its bank by way of accommodation entries. Accordingly, the High Court was of the view that as the basic requirement that the A.O must apply his mind to the material in order to have reasons to believe that the income of the assessee had escaped assessment was missing, the reopening of the assessment was not justified. Further, we find that the Hon'ble High Court of Delhi in the case of PCIT Vs. RMG Polyvinyl (I) Ltd. (2017) 396 ITR 5 (Del), relying on its aforesaid order in the case of Meenakshi Overseas Pvt. Ltd. (supra) had observed, that as the A.O in the case before them had merely acted upon the information received from the Investigation Wing without undertaking any further enquiry on his part thus, the link between the tangible material and the formation of the reasons to believe that the income of the assessee had escaped assessment was not discernible therefrom and accordingly the reopening of the assessment u/s 147 was to be held as bad in law. Further, in the case of CIT Vs. SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del), it was inter alia observed by the Hon'ble High Court that in the case before them the A.O had received information from the Dy. Director of IT (Inv.), Gurgaon that the assessee had raised a bogus claim of having earned long-term capital gains on account of sale/purchase of shares by obtaining entries. After deliberating on the facts, it was inter alia observed by the Hon'ble High Court that a mere reference to the information received from the Dy. Director of IT (Inv.) cannot constitute valid reasons for initiating reassessment proceedings in the absence of anything to show that the A.O had independently applied his mind to arrive at a belief that income has escaped assessment. Also, in the case of CIT Vs. Kamdhenu Steel & Alloys Ltd. & Ors. (2014) 361 ITR 220 (Del), it was observed by the High Court that where the A.O had acted mechanically on the information supplied 39 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
by the Directorate of IT(Inv.) about the alleged bogus/ accommodation entries provided by certain individuals/companies without applying his own mind, he was not justified in invoking jurisdiction under Sec. 147.
9. As observed by us at length hereinabove, the A.O in his 'reasons to believe' in the case of the assessee before us had merely referred to the information that was received by him from the DGIT(Inv.), Mumbai that the assessee as a beneficiary had received accommodation entries from two concerns, and dispensing with even the bare minimum requirement of pointing out the nature of the impugned accommodation entries i.e as to whether they were accommodation entries in the nature of sales or unsecured loans or share application money, on the basis of vague and scanty information and without any further verification, examination or any other exercise had jumped to the conclusion that the income of the assessee in respect of the accommodation entries had escaped assessment for the year in question. Accordingly, in the backdrop of the aforesaid factual matrix it can safely be held that the A.O had blatantly failed to apply his mind to the material available on record for forming a belief that the income of the assessee had escaped assessment. We, thus, are of the considered view that as the A.O had acted mechanically on the information supplied by the Directorate of Income-tax(Inv.) that the assessee was a beneficiary of the alleged bogus/accommodation entries provided by the aforesaid entry provider, viz. Shri Praveen Kumar Jain, and had failed to apply his mind to the material available on his record, the reopening of the assessment by him u/s 147 of the Act could not be held to be justified." We, thus, in terms of our aforesaid observations quash the assessment framed by the A.O u/s. 147 r.w.s 143(3), dated 27.03.2015 for want of valid assumption of jurisdiction on his part. Thus, the Ground of appeal No. 1 is allowed in terms of our aforesaid observations.
14. Ld. AR taking his arguments on the issue further, had alternatively submitted that, even if it is presumed that the Ld. AO had formed a belief on the basis of material information available with him, but nothing could be 40 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
conclusively brought on record as to how the cash deposited in the account of M/s Gitanjali Book Depot was further transferred to M/s Evergrow Suppliers Pvt. Ltd., and the same was further remitted in the account of M/s Arion Commosales Pvt. Ltd., which, thus, finally has brought into the account of the assessee. On this contention, Ld. AR drew our attention to the copy of bank statement of M/s Arion Commosales Pvt Ltd. for account no. 03242000001482 placed before us at page no. 06 to 23. On perusal of the bank statement of M/s Arion Commosales, it is discernible that various amounts have been remitted to the assessee company, but there was no entry of receipt from M/s Evergrow Suppliers Pvt. Ltd. or from M/s Gitanjali Book Depot during the entire relevant period. It was the submission that the bank statement of M/s Arion Commosales Pvt. Ltd. was part of the information, which the ADIT(Inv.), Kolkata had provided to the Ld. AO. Under such facts and circumstances, it was the submission that there was no whisper of the name of entities i.e., M/s Gitanjali Book Depot and M/s Evergrow Suppliers Pvt. Ltd., as alleged by the investigation wing in their report showing trail of funds. So far as funds received from M/s Arion Commosales Pvt. Ltd., there was no dispute by the either side. However, since the delayering done by the department was found to be bereft of support from the factual evidence and the nexus between M/s Gitanjali Book Depot and the assessee company could not be established by the revenue 41 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
till the completion of the assessment, therefore, it is apparent that the basis for issuance of notice u/s 148 are found to be on incorrect facts. To support this contention, Ld. AR placed his reliance on the judgment from the judgment by the Hon'ble Mumbai High Court in the case of Anita A. Choksey vs. Income Tax Officer, [2019] 411 ITR 207, wherein Hon'ble Mumbai High Court has held as under:
"It is a settled position in law that the Assessing Officer acquires jurisdiction to issue a re-opening notice only when he has reason to believe that income chargeable to tax has escaped Assessment. This basic condition precedent is applicable whether the return of income was processed under Section 143(1) of the Act by intimation or assessed by scrutiny under Section 143(3) of the Act. [See Asst. Commissioner of Income Tax v/s. Rajesh Jhaveri Stock Brokers (P) Ltd., (SC) 291 ITR 500 and PCIT v/s. M/s. Shodimen Investments (Bombay) 2018 (93) Taxman.Com 153]. Further, the reasons to believe that income chargeable to tax has escaped Assessment must be on correct facts. If the facts, as recorded in the reasons are not correct and the assessee points out the same in its objections, then the order on objection must deal with it and prima facie, establish that the facts stated by it in its reasons as recorded are correct. In the absence of the order of objections dealing with the assertion of the Assessee that the correct facts are not as recorded in the reason, it would be safe to draw an adverse inference against the revenue.
7. Thus, we are of the view that even in cases where the return of income has been accepted by processing under Section 143(1) of the Act, 42 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
re-opening of an assessment can only be done when the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The mere fact that the return has been processed under Section 143(1) of the Act, does not give the Assessing Officer a carte blanc to issue a re-opening notice. The condition precedent of reason to believe that income chargeable to tax has escaped assessment on correct facts, must be satisfied by the Assessing Officer so as to have jurisdiction to issue the re- opening notice. In the present case, the Assessing Officer has proceeded on fundamentally wrong facts to come to the reasonable belief conclusion that income chargeable to tax has escaped assessment. Further, even when the same is pointed out by the Petitioner, the assessing officer in its order disposing off the objection does not deal with factual position asserted by the Petitioner. Thus, it would safe to conclude that the Revenue does not dispute the facts stated by the Petitioner. On the facts as found, there could be no reason for the Assessing Officer to believe that income chargeable to tax has escaped assessment.
8. Therefore, in the above view, as the impugned notice is without jurisdiction, it is quashed and set aside.
15. Based on the analogy drawn from the aforesaid judgment, it was the assertion from the assessee that reopening assessment was exercised in violation of prescribed procedure merely on the basis of borrowed satisfactions, presumptions and surmises the conclusion arrived at by the Ld. AO was totally arbitrary, illegal, bad in law and in absence of valid 43 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
reasons to believe which was the foundation for reopening assessment, the entire assessment is liable to be termed as void-ab-initio. It was the submission that the order of Ld. CIT(A), therefore, confirming such invalid order in appellate proceedings are at nullity.
16. Another argument raised by the Ld. AR was that the Ld. AO made the addition on account of accommodation entries received by the assessee in the garb of commission which were duly recorded in the books of the assessee, however, are such books of accounts of the assessee were not rejected by the Ld. AO while recharacterizing the income of the assessee emanating from the same set of books of accounts.
17. Another allegation by the Ld. AR was that there was breach of principle of nature justice that the requisite information which should have been suo moto provided to the assessee by the Ld. AO, such as, copy of reasons recorded, inquiry reports of ADIT, which were relied upon by the Ld. AO. It was the argument that such information were not provided to the assessee till the completion of the assessment by the Ld. AO. However, after completion of the assessee, the assessee requested for such details through a letter dated 07.01.2019, but nothing was provided by the Ld. AO. Ld. AR placed his reliance on the order of Hon'ble Supreme Court in the case of 44 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
GKN Dryshaft reported in 259 ITR 19, wherein Hon'ble Apex Court has held that the Ld. AO is duty bound to provide all the materials to the assessee, which has been used against the assessee. If such information is not provided to the assessee, there was gross non-compliance of principle of natural justice.
18. Backed by aforesaid submissions, it was the contention by the Ld. AR that (i) that the reasons recorded are based on incorrect facts, (ii) that the reasons recorded without independent inquiry by the Ld. AO qua the facts which are the foundation of reasons to believe, (iii) that the reasons to believe are formed on the basis of borrowed satisfaction, (iv) that after recording of the reasons the relevant material regarding cash/ fund trail was not available with the Ld. AO for which he had requested the investigation wing, Kolkata to supply the same for completion of the assessment, (v) that the requisite information which was used against the assessee and has to be suo moto provided was not provided to the assessee even up to the completion of assessment and there after even on the request on the assessee, (vi) On merits nothing could be conclusively proved that the assessee had received any amount which was deposited in cash in the bank account of M/s Gitanjali Book Depot to route the same under layering with other entities. With such manifold contentions, Ld. AR prayed to quash the reopening assessment. 45
ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
19. Ld. Sr. DR on the other hand strongly support the orders of the revenue authority and have submitted that there was credible information which the Ld. AO has received from the investigation wing and on the basis of such information the reopening assessment was initiated. Before Ld. CIT(A) also the assessee was unable to furnish any plausible information so as to bring the impugned transactions out of the ambit of additions made u/s 68 and 69C of the Act. In view of such facts, it was the assertion that the order of Ld. AO making additions and the order of Ld. CIT(A) sustain such additions are justified, reasoned, and have all the merits to sustain in the eyes of law, therefore, both the orders of revenue authorities are deserving to be upheld.
20. We have considered the rival submissions, perused the material available on record and judicial pronouncements relied upon. Adverting to the legal grounds raised by the Ld. AR, wherein various contentions are raised to bring the proceedings initiated u/s 147 /148 within the realm of illegal, bad in law and proceedings without valid assumption of jurisdiction. On perusal of the reasons recorded in the instant case, it is evident that the Ld. AO had recorded such reasons with his conviction that the assessee had received certain amounts as commission, in the form of accommodation 46 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
entries from M/s Arion Commosales Pvt. Ltd., which in turn are remitted by M/s Evergrow suppliers Pvt. Ltd as the same was received from M/s Gitanjali Book Depot. It was the observation of Ld. AO that huge chunk of cash was deposited in the bank account of M/s Gitanjali Book Depot and subsequently transferred to the assessee company through layering of transactions. It is also the observation of the Ld. AO that M/s Evergrow Suppliers Pvt. Ltd. and M/s Arion Commosales Pvt. Ltd are dummy entities, not carrying on any business activity and are not found at their given address. Ostensibly, all such information are emanating from the information forwarded by the ADIT (Inv.) Unit-3(4), Kolkata vide their letter dated 30.01.2018 copy of the same has been placed before us, (extracted supra). It is further brought to our attention that the relevant information qua the fund trail was sought by the Ld. AO from ADIT(Inv.) on 03.12.2018 and the same was supplied to the Ld. AO on 06.12.2018, such fact on record shows that the relevant information regarding deposit of cash and thereafter its transmission through dummy entities under chain transactions to the beneficiary assessee was not in possession of the Ld. AO when the reasons are recorded on 26.02.2018. Moreover, as the Ld. AO had issued a communication u/s 133(6) to ICICI bank, Kolkata on 07.12.2018 seeking copy of statement of account no. 106505000398 of M/s Gitanjali Book Depot House for the FY 2010-11 to 2014-15, displays that such information could not be made available by the 47 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
investigation wing also, therefore, the Ld. AO adopted the possible course of action available with him to approach the bank, under such a scenario it can not be said that the requisite information was available with the Ld. AO to verify and convincingly establish that the huge cash are deposited in the account of M/s Gitanjali Book Depot and the same have been rooted to the benefit of the assessee. Further, on perusal of the bank statement of M/s Arion Commosales Pvt. Ltd. for the relevant period, from whom the assessee company had received the commission income, which was alleged by the revenue as receipts in the form of accommodation entry, however, it is observed that there was no receipt in the bank account of the M/s Arion Commosales Pvt Ltd. from M/s Evergrow Suppliers Pvt. Ltd. or M/s Gitanjali Book Depot, therefore, in view of such facts the reasons recorded by the Ld. AO are found to be without any basis, merely the repetition of information received from investigation wing, dehors any independent inquiry or application of mind, much less the claim of the Ld. AO that it has been noticed by the undersigned that huge chunk of cash was deposited in the bank account of M/s Gitanjali Book Depot was found to be a bald statement as the relevant information was not with him and further on perusal of the bank statement such conviction of the Ld. AO is found to be militating against the corroborative evidence. Since the Ld. AO was hunting for the evidence / information even after 09 months from the date of recording of the reasons, 48 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
therefore, the reasons recorded can be construed as formation of belief under borrowed satisfaction and obviously without application of mind as the information which was to be looked into was not available with the Ld. AO. Further since the facts are found to be incorrect, which was the basis for reopening assessment, therefore, on that ground also the reopening assessment u/s 147 cannot sustained.
21. We, therefore, in terms of aforesaid observations respectfully following the decision of this tribunal in the case of Shri Tarun Pugalia Jain vs. ITO, wherein various judgments comprises of Anirudh Sinhji Karan Sinhji Jadeja Vs. State of Gujarat (SC), Chetan Rajnikant Shah Vs. ITO (ITAT, Mumbai), PCIT Vs. Meenakshi Overseas Pvt. Ltd. (Delhi HC), PCIT Vs. G & G Pharma India Ltd. (2016) 384 ITR 147 (Del), PCIT Vs. RMG Polyvinyl (I) Ltd. (2017) 396 ITR 5 (Del), CIT Vs. SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del), CIT Vs. Kamdhenu Steel & Alloys Ltd. & Ors. (2014) 361 ITR 220 (Del), on the issue of borrowed satisfaction and mechanical application of mind without independent inquiry have been exhaustively deliberated upon. Applying the ratio emerging from the aforesaid case laws, to the facts in the present case, admittedly, in the instant case the Assessing Officer had formed a reason to believe that the income of the assessee chargeable to 49 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
tax has escaped assessment, however, the information which was relied upon by the Ld. AO was merely a report from the investigation wing along with bank statement of M/s Arion Commosales Pvt. Ltd. The reasons recorded are showing the conviction of Ld. AO that he had noticed certain information about cash deposits from the bank statement of M/s Gitanjali Book Depot and he has reason to believe that such cash was received by the assessee in the garb of accommodation entries through M/s Evergrow Suppliers Pvt. Ltd., whereas as per facts born from records the bank statement of M/s Gitanjali Book Depot was never available with the Ld. AO, which later he obtained through proceedings u/s 133(6) directly from bank after 9 months from the date of recording of reasons. Under such facts, it can be conclusively opined that the Ld. AO had formed the reason to believe without application of mind to the material/information which was though claimed to be noticed but eventually was not available with him. Thus, the proceedings invoked u/s 147 by issuing the notice u/s 148 for reopening of the case of the assessee by merely referring to the information that was received by him from the investigation wing are found to be invalid in the eyes of law. As per the settled position of law, the reopening of a concluded assessment presupposes application of mind by the Assessing Officer to the material/information before him, on the basis of which he arrives at a bonafide belief that the income of the assessee chargeable to tax had 50 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
escaped assessment. However, in the present case, the Ld. AO had merely acted in a mechanical manner on the information that was received by him from the ADIT(Inv.), without applying his mind to the information/material which was supposed to be verified but the same was not available with him, therefore, we concur with the contentions raised by the Ld. AR, which are supported with material evidence/information and relevant case laws, which could not be dislodged by the revenue by bringing on record any contrary decision, evidence or material fact. Consequently, we are of the considered opinion that the Ld. AO had reopened the present case of the assessee on the basis of a borrowed satisfaction/ without application of mind which is the prerequisite condition for the reopening assessment, moreover on the basis of incorrect facts as the delayering of the transactions are not inconsistency with the facts and circumstances, which are construed and recorded by the Ld. AO in the reasons to believe, therefore, had wrongly assumed jurisdiction u/s.147 of the Act, while initiating the reopening proceedings, which thus, on the said count itself cannot be upheld and the assessment completed in wake of such invalid proceedings is liable to be quashed.
22. Since we have quashed the assessment on the basis of aforesaid observations, therefore, without dealing with the other contentions raised by 51 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
the Ld. AR, may it be legal or on merits, therefore, the same are left open. Resultantly, ITA No. 85/RPR/2024 of the assessee stands allowed.
23. As the issue involved in all the aforesaid appeals are common, having similar facts and circumstances except the quantum of addition, therefore, our decision in ITA 85/RPR/2024 shall apply, mutatis mutandis on the remaining appeals also i.e., ITA No. 86 to 89/RPR/2024, in terms of our observations hereinabove, thus, ITA No. 86 to 89/RPR/2024 of the assessee are also stands allowed.
24. In combined result, the appeals under consideration in this order i.e., ITA No. 85 to 89/RPR/2024 all are disposed of in favour of the assessee, as discussed, deliberated and decided, under our aforesaid observations.
Order pronounced in the open court on 12/07/2024.
Sd/- Sd/-
(RAVISH SOOD) (ARUN KHODPIA)
ाियक सद / JUDICIAL MEMBER लेखा सद / ACCOUNTANT MEMBER
रायपुर/Raipur; िदनांक Dated 12/07/2024
Vaibhav Shrivastav
आदे श की ितिलिप अ ेिषत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant-
2. थ / The Respondent-
3. आयकर आयु (अपील) / The CIT(A),
4. आयकर आयु / CIT 52 ITA No. 85, 86, 87, 88, 89/RPR/2024 Mahavir Moulds India Pvt. Ltd.
5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, रायपुर/ DR, ITAT, Raipur
6. गाड फाईल / Guard file.
// स या पत ित True copy // आदे शानु सार/ BY ORDER, (Assistant Registrar) आयकर अपीलीय अिधकरण, रायपुर/ITAT, Raipur