Income Tax Appellate Tribunal - Delhi
Nancy Sales Pvt. Ltd., New Delhi vs Ito, Ward- 13(1), New Delhi on 19 January, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "SMC", NEW DELHI
BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER
ITA No.4129/Del/2017
Assessment Year : 2007-08
Nancy Sales Pvt. Ltd., ITO, Ward- 13(1),
C/o Anil Jain DD & Co., New Delhi.
CAs, 611, Surya Kiran Building, Vs.
19, KG Marg, New Delhi.
PAN : AACCN2492G
(Appellant) (Respondent)
Assessee by : Shri Anil Kumar Jain, CA
Department by : Shri Amit Jain, Sr.DR
Date of hearing : 24-10-2017
Date of pronouncement : 19-01-2018
ORDER
PER R. K. PANDA, AM :
This appeal filed by the assessee is directed against the order dated 06.04.2017 of CIT(A)- 38, Delhi relating to assessment year 2007-08.
2. Facts of the case, in brief, are that the assessee is a company and filed its original return of income on 28.10.2007 declaring total income of Rs.4,624/-. The Assessing Officer received information from the Investigation Wing that a search operation u/s 132 was conducted in the premises of Shri Tarun Goyal, a Chartered Accountant. It was found during the search and post search enquiries that he had created a number of private limited companies and firms for providing accommodation entries. The Directors of these companies were his 2 ITA No.4129/Del/2017 employees who worked in his office as peons, receptionists etc. A number of bank accounts in various banks were opened in the names of these companies and his employees in which huge cash deposits were made. Later on cheques were issued to various beneficiaries disguising the whole transaction as genuine.
3. The letter of the ADIT (Inv.) also provided the list of various beneficiaries who had taken accommodation entries from various companies being floated by Shri Tarun Goyal. As per the said details, the assessee M/s Nancy Sales Pvt. Ltd. has taken accommodation entry of Rs.5,00,000/- from a company called Thar Steels Pvt. Ltd. floated by Shri Tarun Goyal. Since the assessee was also a beneficiary of accommodation entries of Rs.5,00,000/- from M/s Thar Steels Pvt. Ltd. a company managed and controlled by Shri Tarun Goyal who was identified to be engaged in the business of providing accommodation entries and had also admitted the same on oath, the Assessing Officer initiated proceedings u/s 147 by recording reasons that the assessee had not disclosed its true income and notice dated 26.03.2012 was issued u/s 148 of the I.T. Act.
4. The assessee filed a letter dated 16.04.2012 stating that the return already filed on 28.10.2007 may be treated to have been filed in response to notice u/s 148 of the I.T. Act. The assessee applied for the reasons recorded for such reopening which were duly provided to the assessee. However, the assessee did not file any objection. During the course of assessment proceedings, the 3 ITA No.4129/Del/2017 Assessing Officer observed that the assessee has raised fresh share capital of Rs.14,00,000/- including share premium of Rs.10,50,000/- from two companies, the details of which are as under :-
(a) M/s Thar Steels Pvt. Ltd. - Rs.5,00,000/-
(b) M/s Moderate Credit Corporation Pvt. Ltd. - Rs.9,00,000/-
5. During the course of assessment proceedings, the assessee filed various details such as copy of share application form, copy of PAN of M/s Thar Steels Pvt. Ltd., confirmation of investments from this company, copy of certificate of incorporation of M/s Thar Steels Pvt. Ltd.. Similar documents were also produced in the case of M/s Moderate Credit Corporation Pvt. Ltd.. However, despite being asked by the Assessing Officer, the assessee did not produce the Directors of the above companies. Since the assessee failed to produce the Directors of the above two companies, the Assessing Officer came to the conclusion that the documents so produced before him do not fulfill the criteria regarding the creditworthiness of the above two companies. He further observed that the assessee company is not doing any substantial business so as to command such high premium on the share issued by it. Further, out of the share capital and premium received by it during the year a sum of Rs.1,79,525/- has been given as advances against the properties and the balance amount has been retained in the bank account. He, therefore, came to the conclusion that 4 ITA No.4129/Del/2017 neither the assessee company was in need of any further share capital nor its financial position was so strong that any prudent investor would purchase its shares at a premium. In view of the above and relying on various decisions including the decisions in the case of M/s Nova Promoters & Finlease Pvt. Ltd., M/s N.R. Portfolio Pvt. Ltd., M/s Nlpun Builders Pvt. Ltd. and M/s Neelkanth Ispat Udyog Pvt. Ltd., the Assessing Officer made addition of Rs.14,00,000/- received from the above two companies as unexplained cash credit u/s 68 of the I.T. Act. Further, he made addition of Rs.28,000/- being unexplained expenditure spent from undisclosed sources for obtaining the above accommodations entries u/s 69C of the I.T. Act.
6. Before the ld. CIT(A), the assessee challenged the validity of the re- assessment proceedings as well as the addition on merit. So far as the validity of re-assessment u/s 147 is concerned, the ld. CIT(A) dismissed the said ground by observing as under :-
"4.2 I have carefully considered the assessment order, the submissions of the appellant and the cases laws relied upon by appellant. This ground of appeal challenges the legal validity of issue of notice under section 147 read with 148 of the Income Tax Act. In this case assessing officer after receipt of information from the Investigation wing of the Income Tax Department issued notice u/s 147 r.w.s 148 of IT Act on the basis of which the assessment was reopened. In the case of Pratibha Finvest P. Ltd. Vs ITO 14(3), New Delhi [2013] 215 Taxman 0470 Hon'ble Delhi High Court has held as under:-
"9. In the opinion of this Court, the law as it existed always was that if a valid notice under Section 147 was issued by the AO, the scope of scrutiny and final assessment made in the reopening proceedings was not conditioned upon the material which impelled him to issue notice. To hold such a view would be to impinge on the concededly wide power conferred upon the Revenue in Section 147/148 and undermine 5 ITA No.4129/Del/2017 its objective. Consequently, the W.P.(C) 7538/12 and 307/12 Page 10 appellant's contention in this regard are rejected.
10. This Court has carefully considered the submissions. As regards the challenge to the reopening of proceedings is concerned, the Court is satisfied that the notice under Section 147 reflected due application of mind to objective material furnished to the AO, i.e. by way of Investigation Report which could have given rise to a bonafide belief, legitimately falling within Section 147."
4.3 Respectfully following the decision of Hon'ble Delhi High Court in the case of Pratibha Finvest P. Ltd. Supra, I hold that AO has fulfilled the statutory conditions prescribed u/s 147 r.w.s 148 of the IT Act and has issued notice u/s 147 after due application of mind to material furnished to the AO by Investigation Wing. These grounds of appeal are dismissed."
7. So far as addition of Rs.9,00,000/- from M/s Moderate Credit Corporation Pvt. Ltd. is concerned, ld. CIT(A) deleted the same and the Revenue is not in appeal before the Tribunal. Therefore, I am not concerned with the same. However, the ld. CIT(A) sustained the addition of Rs.5,00,000/- made by the Assessing Officer on the ground that the information was received from the Investigation Wing of the Department in respect of the accommodation entries of Rs.5,00,000/- from M/s Thar Steels Pvt. Ltd., a company managed and controlled by Shri Tarun Goyal, who was identified to be engaged in the business of providing accommodation entries and also admitted the same on oath. The Assessing Officer has conducted extensive enquiries in order to substantiate the finding of the Investigation Wing that the share capital of Rs.5,00,000/- allegedly received from M/s Thar Steels Pvt. Ltd. is a paper company controlled and managed by Shri Tarun Goyal for the purpose of 6 ITA No.4129/Del/2017 providing accommodation entries and is a sham transaction. Relying on the decision of the Hon'ble Delhi High Court in the case of Onassis Axles (P.) Ltd. vs. CIT reported in 44 taxmann.com 408, ld. CIT(A) upheld the action of the Assessing Officer in making the addition of Rs.5,00,000/- u/s 68 of the I.T. Act and amount of Rs.10,000/- u/s 69C of the I.T. Act being unexplained expenditure for getting such accommodation entries.
8. Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds :-
"1. That on the facts and circumstances of the case and the provision of law Ld CIT Appeal has failed to appreciate that the initiation of proceeding u/s 147 and issue of notice u/s 148 is illegal and bad in law and consequently the assessment made requires to be quashed.
2. That on the facts and circumstances of the case and the provision of law Ld CIT Appeal has failed to appreciate that the impugned order passed u/s 147/143(3) of the IT Act, is illegal, bad in law, without jurisdiction and contrary to the facts.
3. That on the facts and circumstances of the case and the provisions of the law, the Ld. CIT Appeal has erred in sustaining an addition of Rs. 5,00,000/- on account of share application money received by the appellant during the year.
4. That on the facts and circumstances of the case and the provisions of the law, the Ld. CIT Appeal has erred in sustaining an addition of Rs. 10,000/- on account of unexplained expenditure u/s 69C.
5. That on the facts and in the circumstances of the case the Ld. AO has erred in law in initiating the penalty proceedings u/s 271(1)(c) of the Income Tax Act 1961.
6. That the Ld. AO has erred in law in charging of interest u/s 2348 & 234C of the IT Act.
7. That the appellant craves leave to reserve to itself the right to add, alter amend, vary, modify and/or withdraw and ground(s) of appeal at or before the time of hearing."
9. Ld. counsel for the assessee at the outset submitted that no tangible material was available before the Assessing Officer and the reopening of the assessment u/s 147 by issuing notice u/s 148 of the I.T. Act was on borrowed 7 ITA No.4129/Del/2017 satisfaction. Referring to the decision of the Hon'ble Delhi High Court in the case of Signature Hotels (P) Ltd. vs. ITO reported in 338 ITR 51 and various other decisions filed in the Paper Book, he submitted that the reopening on the basis of report of Investigation Wing without application of mind by the Assessing Officer is not valid.
10. So far as the merit of the case is concerned, he submitted that the assessee has filed all the relevant details before the Assessing Officer to substantiate the identify and creditworthiness of the share applicant company and the genuineness of the transaction. The payment was received by account payee cheque. The company has replied to the notice issued u/s 133(6) of the I.T. Act. Merely because the assessee has not produced the Director, the same cannot be a ground to disbelieve the creditworthiness of the share applicant company. Referring to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Victor Electrodes reported in 329 ITR 271, ld. counsel for the assessee drew the attention of the Bench to para 9 of the order which reads as under :-
"9. There was no legal obligation on the assessee to produce some Director or other representative of the applicant companies before the Assessing Officer. Therefore, failure of assessee to produce them could not, by itself, have justified the additions made by the Assessing Officer, when the assessee had furnished documents, on the basis of which, the Assessing Officer, if he so wanted, could have summoned them for verification. No attempt was made by the Assessing Officer to summon the Directors of the applicant companies. The addresses of these companies must be available on the share applications, Memorandum and Articles of Association and their Income Tax Returns. If the Assessing Officer had any doubt about identity of the share applicants, he could have summoned the Directors of the applicant companies. No such attempt was, however, made by him. Therefore, the Commissioner of Income Tax(Appeals) and the Income Tax Appellate Tribunal, in our view were justified in 8 ITA No.4129/Del/2017 holding that the identity of share applicants and the genuineness of the transactions had been established by the assessee."
11. He also relied on the following decisions :-
(a) CIT vs. Insecticides India Ltd., 357 ITR 330. (b) ITO vs. Maya Gupta, ITA No.3435/Del/2013. (c) CIT vs. G&G Pharma India Ltd., ITA No.545/2015. (d) SABH Infrastructure Ltd. vs. ACIT, W.P. (C) 1357/2016. (e) Meenakshi Overseas vs. PCIT, ITA No.692/2016. (f) ITO vs. Prateek Securities (P) Ltd., ITA No.78&2823/Del/2013 (g) CIT vs. Gangeshwari Metals (P) Ltd., 361 ITR 10. (h) Goodview Trading Pvt. Ltd. vs. PCIT, ITA No.377/2016 (i) Parbhatam Investment Pvt. Ltd. vs. ACIT, ITA No.2525/Del/2015. (j) Arceli Realty Ltd. vs. ITO, ITA No.6492/Mum/2016. (k) ITO vs. N.C. Cables Ltd., ITA No.4122/Del/2009.
12. He accordingly submitted that the re-assessment proceedings initiated by the Assessing Officer being invalid the entire assessment order should be quashed. Even on merit he argued that since the assessee has proved the identity and creditworthiness of the share applicant and the genuineness of the transaction, the order of the ld. CIT(A) should be set-aside. He further submitted that that in the assessment year 2008-09, the ld. CIT(A) has deleted the addition made by the Assessing Officer of Rs.10,00,000/- being share capital and share application money received from M/s Thar Steels Pvt. Ltd.. The appeal filed by the Revenue was however dismissed by the Tribunal for low tax effect. He accordingly submitted that the order of the ld. CIT(A) be set- aside and the grounds raised by the assessee be allowed.
9ITA No.4129/Del/2017
13. Ld. DR on the other hand strongly relied on the order of the ld. CIT(A). He submitted that the Tribunal in the case of Tarun Goyal and batch of other appeals vide consolidated order dated 18.10.2013 has restored the issue to the file of the Assessing Officer for fresh adjudication. The share applicant company M/s Thar Steels Pvt. Ltd. also appears in the said list. Therefore, the issue may be restored to the file of the Assessing Officer for fresh adjudication.
14. So far as validity of the re-assessment proceedings are concerned, he submitted that the Assessing Officer on the basis of the report of the Investigation Wing has reopened the assessment u/s 147 and notice u/s 148 has been issued after apply of mind properly before such reopening. Therefore, the reopening being valid, the ground raised by the assessee on this issue should be dismissed.
15. 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 have also considered the various decisions cited before me. A perusal of the reasons for reopening of the case for the impugned assessment year, copy of which is placed at page 5 and 6 of the Paper Book, shows that the reopening was made on the basis of the report of the Investigation Wing and there is no independent application of mind by the Assessing Officer for such reopening. The Jurisdictional High Court in a number of cases has held that the reopening on the basis of report of the Investigation Wing without independent 10 ITA No.4129/Del/2017 application of mind by the Assessing Officer is not valid. Accordingly, the reassessment proceedings were held to be illegal. Since in the instant case the reopening has been made on the basis of report of the Investigation Wing and there is no independent application of mind by the Assessing Officer for reopening of the assessment u/s 147 by issuance of notice u/s 148, therefore, I hold that the reassessment proceedings initiated by the Assessing Officer is not proper. Therefore, I hold that the reassessment proceedings initiated by the Assessing Officer is illegal and accordingly the subsequent proceedings also become illegal. Since the assessee succeeds on this legal ground, the other grounds being academic in nature are not being adjudicated.
16. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on this 19th January, 2018.
Sd/-
(R. K. PANDA) ACCOUNTANT MEMBER Dated: 19-01-2018.
Sujeet Copy of order to: -
1) The Appellant
2) The Respondent
3) The CIT
4) The CIT(A)
5) The DR, I.T.A.T., New Delhi
By Order
//True Copy//
Assistant Registrar
ITAT, New Delhi